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COVER SHEET

(Company�s Full Name)

(Business Address: No. Street City / Town / Province)

Contact Person Company Telephone Number

Month Day FORM TYPE Month Day Fiscal Year Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Article Number/Section Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign ____________________________________________________________________________________________

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier S T A M P S

STI Education Services Group, Inc. SEC Form 17 – A As of March 31, 2017

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12. Check whether the registrant:

(a) has filed all reports required to be filed by Section 17 of the Securities Regulations Code (SRC) and SRC Rule 17 (a) - 1 there under and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports);

Yes [√ ] No [ ]

(b) has been subject to such filing requirements for the past 90 days.

Yes [√ ] No [ ] 13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. N/A 14. The Company was not involved in any insolvency/suspension of payments proceedings in the

last five (5) years.

DOCUMENTS INCORPORATED BY REFERENCE 15. The March 31, 2017 Audited Consolidated Financial Statements is incorporated by reference in

this SEC Form 17-A (Item 7)


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TABLE OF CONTENTS

PART 1 - BUSINESS AND GENERAL INFORMATION 4

Item 1. DESCRIPTION OF BUSINESS 4

Item 2. PROPERTIES 23

Item 3. LEGAL PROCEEDINGS 26

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 40

PART II – OPERATIONAL AND FINANCIAL INFORMATION 40

Item 5. MARKET FOR ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 40

Item 6. MANAGEMENT’S DISCUSSION AND ANALYSIS 42

Item 7. FINANCIAL STATEMENTS 57

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES 57

PART III – CONTROL AND COMPENSATION INFORMATION 59

Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER 59

Item 10. EXECUTIVE COMPENSATION 67

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 68

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 69

PART IV – CORPORATE GOVERNANCE 72

Item 13. CORPORATE GOVERNANCE 72

PART V – EXHIBIT AND SCHEDULES 73

Item 14. EXHIBITS AND REPORTS ON SEC FORM 17-C 73

SIGNATURES 74

MARCH 31, 2017 AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES


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PART 1 - BUSINESS AND GENERAL INFORMATION

Item 1. DESCRIPTION OF BUSINESS Group History and Structure STI Education Services Group, Inc. (STI ESG) Established on August 21, 1983, STI ESG began with a goal of training as many Filipinos as possible in computer programming and addressing the information technology (IT) education needs of the Philippines. Starting as a training center with only two (2) schools, STI ESG initially offered short-term computer programming courses that were patterned to satisfy the demand of college graduates and working professionals who wanted to learn more about the emerging computer technology. Shortly after, STI ESG’s campuses began to grow as it started granting franchises in other locations within Metro Manila which soon expanded to other key areas in Luzon, Visayas, and Mindanao. In the mid-1990s, STI ESG opened international campuses in Hong Kong, Rome, Milan, Macau, Singapore, Taiwan, and Vietnam. And in 1998, STI ESG had more than 100 campuses across the nation and outside the Philippines. In 2003, management decided to focus its attention on the domestic market but continued to study the possibility of going international once again. Over the years, STI ESG began shifting its focus from short-term courses to college degree programs to adjust to the changing business environment. In 1995, STI ESG was granted a permit by the Commission on Higher Education (CHED) to operate colleges and started to roll out four-year college programs starting with the Bachelor’s Degree in Computer Science. STI ESG then slowly diversified its programs beyond Information & Communications Technology by introducing new programs in the fields of Business and Management, Engineering, Healthcare, Hospitality Management, Tourism Management, Arts and Sciences, and Education. STI ESG embarked on strengthening its geographical presence nationwide as it aggressively constructed improved facilities. More STI ESG schools are now veering away from rented commercial complexes and have moved to bigger and better school-owned stand-alone campuses that are strategically located. All of the improved campuses house state-of-the-art facilities, spacious classrooms, top-of-the-line simulation laboratories, and recreational facilities conducive for high academic delivery. To date, there are fourteen (14) wholly-owned schools with renovated or newly built facilities. In addition, incentives were offered to franchisees to upgrade their facilities of which twelve (12) had responded so far. STI ESG has centralized its efforts into academic quality and started investing in trainings on awareness, documentation, and internal quality audit to achieve the ISO 9001:2008 certification for its Learning Delivery System—composed of the courseware development process, the faculty certification process, and the faculty training process—which was awarded on February 5, 2015 by the ISO certifying body TÜV Rheinland Philippines Inc. When the Department of Education (DepEd) announced the K to 12 program in 2013, STI ESG capitalized on its nationwide presence and ample facilities to implement the first-to-market approach of the Senior High School (SHS) program. In 2014, DepEd granted permit to offer early implementation of SHS to 92 private schools nationwide, 67 out of 92 schools or 73% are STI ESG schools which made STI ESG the largest pioneer in Senior High School.


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Through the consistent efforts of management, the STI brand has been recognized as a provider of high-quality real life education. STI ESG Network As a testament to its growing presence nationwide, the STI ESG network has seventy-six (76) schools spread across Luzon, Visayas, and Mindanao and is comprised of sixty-four (64) STI-Branded Colleges and twelve (12) STI-Branded Education Centers. Likewise, of these seventy-six (76) schools, thirty-two (32) college campuses and five (5) education centers are wholly-owned while thirty-two (32) college campuses and seven (7) education centers are operated by franchisees..

Metro Manila (16) Alabang Caloocan Cubao Fairview

Global City Las Piñas Makati Marikina

Muñoz-EDSA Novaliches Parañaque Pasay

Quezon Avenue Recto Shaw Taft

Northern & Central Luzon (18) Alaminos Angeles Baguio Balagtas Baliuag

Cauayan Dagupan Ilagan La Union Laoag

Malolos Meycauayan San Fernando,

Pampanga San Jose, Nueva

Ecija

Sta. Maria Tarlac Tuguegarao Vigan

Southern Luzon (19) Bacoor Balayan Batangas Calamba Dasmariñas

Legazpi Lipa Lucena Naga Ortigas-Cainta

Puerto Princesa Rosario San Pablo Santa Rosa Southwoods

Sta. Cruz Tagaytay Tanauan Tanay

Visayas (8) Bohol Calbayog

Cebu Dumaguete

Iloilo Kalibo

Maasin Ormoc

Mindanao (15) Cagayan de Oro Cotabato Davao Dipolog

General Santos Iligan Koronadal Malaybalay

Pagadian San Francisco Surigao Tacurong

Tagum Valencia Zamboanga


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Corporate Structure STI ESG has a total Authorized Capital Stock (ACS) of Five Billion Pesos (₱5,000,000,000.00) divided into five billion (5,000,000,000) shares with a par value of One Peso (₱1.00) each. Out of the ACS, three billion eighty-one million eight hundred seventy-one thousand eight hundred fifty-nine (3,081,871,859) shares have been subscribed and paid-up. Of the total subscribed and paid-up capital stock, seven million eight hundred forty-one thousand one hundred eighteen (7,841,118) shares are foreign-owned. In August 2009, STI ESG subscribed to a 20% interest in a newly created holding company, STI Investments, Inc. (STI Investments). STI Investments subsequently acquired a 100.0% interest in PhilPlans First, Inc. (PhilPlans), now a leading pre-need company, providing innovative pension, education, and life plans. PhilPlans later acquired a 65% interest in Rosehills Memorial Management, Inc., a company engaged in the operation and management of a memorial park, memorial and interment services, and sale of memorial products. STI Investments also acquired a 99.89% interest in PhilhealthCare, Inc. (PhilCare), a Health Maintenance Organization (HMO) that provides effective and quality health services, and operates through its own clinics and through nationwide accredited clinics and hospitals. In May 2012, STI Investments acquired 70.0% of Philippine Life Financial Assurance Corp. (PhilLife), formerly Asian Life Financial Assurance Corp. PhilLife provides financial services, such as individual, family and group life insurance, investment plans, and loan privilege programs. In December 2015, STI Investments subscribed to additional shares of PhilLife thus increasing its ownership to 70.6% as of March 31, 2016. T h e SEC approved the change in the corporate name of STI Investments, Inc. to Maestro Holdings, Inc. on February 17, 2016. Merger of Several Majority and Wholly-Owned Subsidiaries

On December 9, 2010, STI ESG’s stockholders approved the following mergers:

Phase 1: The merger of three (3) majority-owned schools and fourteen (14) wholly-owned schools with STI ESG, and with STI ESG as the surviving entity. The Phase 1 merger was approved by CHED and the SEC on March 15, 2011 and May 6, 2011, respectively.

Phase 2: The merger of one (1) majority-owned school and eight (8) wholly-owned pre-operating schools with STI ESG, and with STI ESG as the surviving entity. The Phase 2 merger was approved by CHED and the SEC on July 18, 2011 and August 31, 2011, respectively.

On September 25, 2013, the Board of Directors (BOD) of STI ESG approved an amendment to the Phase 1 and 2 mergers whereby STI ESG would issue shares at par value to the stockholders of the non-controlling interests. In 2014, STI ESG issued 1.9 million additional shares at par value to the stockholders of one of the merged schools. As of the date of this report, the amendment is pending approval by the SEC. In addition, the BOD of STI ESG approved the Phase 3 merger whereby STI College Taft, Inc. (STI Taft) and STI College Dagupan, Inc. (STI Dagupan) will be merged with STI ESG, and with STI ESG as the surviving entity on September 25, 2013. On August 5, 2016, STI ESG filed the merger application for STI Taft and STI Dagupan. As of the date of this report, the application for merger is pending approval by the SEC.

To date, STI ESG’s request for confirmatory ruling on the tax-free merger from the BIR is still pending.


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Capital Market Infrastructure STI ESG’s ₱3.0 billion bond issue has been assigned by Philippine Rating Services Corporation (PhilRatings) an Issue Credit Rating of PRS Aa, which meant that the Company’s proposed debt issue is of “high quality and is subject to very low credit risk.”

Obligations rated PRS Aa are of high quality and are subject to very low credit risk. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong. PRS Aa is the second highest rating category on PhilRatings’ existing credit rating scale.

On March 23, 2017, STI ESG listed its ₱3 Billion Series 7-year Bonds due 2024 and Series 10-year Bonds due 2027 on the Philippine Dealing and Exchange Corp. (PDEx) secondary market. The Bonds carry coupon rates of 5.8085% and 6.3756% for the 7-year and 10-year tenors, respectively. Interest payments are payable quarterly in arrears on June 23, September 23, December 23, and March 23 or the next business day if such dates fall on a non-banking day, of each year commencing on June 23, 2017, until and including the relevant Maturity dates. The ₱3.0 billion bond issue is the first tranche of its ₱5.0 billion fixed rate bonds program under its 3-year shelf registration with the SEC. The proceeds of the first tranche of the debt securities program have been earmarked for the expansion of STI ESG campuses, refinancing of short-term loans incurred for the acquisition of land, and other general corporate requirements (see Item 2 Properties/Campus Expansion). Business Development

STI Education Services Group, Inc. (STI ESG), is the largest subsidiary of STI Holdings, a publicly-listed company. STI ESG is engaged in establishing, maintaining, and operating educational institutions. It derives its main revenues from the tuition and other school fees of its owned schools, and from the royalties, and other fees for various educational services provided to its franchised schools. At present, STI ESG offers secondary and tertiary programs, as well as post-graduate and associate programs. The colleges of STI ESG offer associate/baccalaureate degrees and technical/vocational programs in the fields of Information and Communications Technology (ICT), Business and Management, Hospitality Management, Tourism Management, Arts and Sciences, Engineering, and Education. These programs are accredited by the Commission on Higher Education (CHED) and/or the Technical Education and Skills Development Authority (TESDA), as may be applicable. Also accredited by TESDA, the education centers of STI ESG offer technical/vocational courses for computer programming, computer technology, multimedia arts, and office administration, among others. In addition, all schools in the STI ESG network have been granted permit by the Department of Education (DepEd) to offer Senior High School (SHS). Enrollment

STI ESG had an average total enrollment of 69,896 for the first and second semesters of SY 2014–15. The average total enrollment continued to go up to 74,524 in SY 2015–16 which consequently attained a 6.62% increase. This steady increase continued in SY 2016–17 as the number of enrollees went up by 24.4% and reached an average total enrollment of 92,707.


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In SY 2013–14, the total freshmen enrollees were 31,871 and grew by 3.52% in SY 2014–15. The number of enrollees continued to improve to 34,149 in SY 2015–16 attaining an increase of 8.13%. Total freshmen college enrollees reached 8,586 in SY 2016–17 notwithstanding the full implementation of the K to 12 program.

The average percentage of students retained in a semester from SY 2014–15 to SY 2015-16 is at 96%, which slightly improved to 97% in SY 2016–17. Meanwhile, the average percentage of students who migrated to the succeeding semester is at 91% in SY 2014–15 and 92% in SY 2015–16. In SY 2015–16, the migration rate improved to 94%.

In the previous years, significant increases in the enrollment are more evident in the degree programs of STI ESG compared to its technical/vocational programs. The share of associate and baccalaureate degree programs to technical/vocational programs improved from 81% and 16%, respectively, in SY 2014–15 to 85% and 12%, respectively, in SY 2015–16. The senior high school tracks and specializations posted a 3% share for both SY 2014–15 and SY 2015–16. Enrollment mix in SY 2016–2017 is 56%, 5% and 39% for associate and baccalaureate degree programs, technical/vocational programs and senior high school tracks and specializations, respectively. Following the full implementation of the K to 12 program in SY 2016–17, the number of enrollees in the associate and baccalaureate degree programs and technical/vocational programs went down by 55% and 6%, respectively. The decline was mitigated by the population of senior high school which significantly increased from 1,577 to 37,571.

In SY 2014–15, STI ESG generated 12,280 graduates for the first and second semesters, and 12,672 in SY 2014–15. In SY 2016–17, there were 13,357 graduates for the first and second semesters.

Tuition Fee Increases

There was no increase in the tuition fees and other school fees in SY 2014–15. On the other hand, 5% increases were implemented in the tuition fees and other school fees in SY 2015–16 and SY 2016–17.

New Programs/Majors and Revised Curricula

STI ESG regularly conducts market studies to determine what programs, both degree and technical- vocational, are needed by the industry and the market. Moreover, revisions to existing program s are implemented to meet changes in the identified needs, as well as changes in government regulatory requirements.

Existing course offerings are likewise reviewed as needed. The streamlining of program curricula in response to the needs of the market and developments in the industry drives the rationalization of STI course offerings. In SY 2014–15, one program underwent program revisions. No programs were revised in SY 2015–16 and SY 2016–17. STI ESG’s Standardized Courseware

STI ESG develops courseware to ensure the standard delivery of courses across all campuses in the STI ESG network. These are sets of teaching materials used by the instructors which include the course syllabus with the course outline that sets the general objectives of the course, presentation slides, the class hand-outs and other materials for use throughout the duration of the course, with


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accompanying instructors’ guides. The instructors’ guides identify the specific objectives of each class session, the appropriate teaching methodologies to be used, and how the provided materials are to be used to achieve the set objectives. In SY 2011–12, the traditional courseware materials were converted to LCD versions and course delivery improved with the incorporation of multimedia materials. As of this writing, STI ESG has developed courseware for over 500 courses and new courseware materials are being developed as new courses and programs are offered. Moreover, existing courseware are regularly revised and updated to keep up with recent developments in the target industries. In SY 2016–17, 87 courseware materials were developed and revised for Arts and Sciences, IT and Engineering, Business and Management, Tourism Management, and Hospitality Management. These courseware materials were embedded with activities leading toward attainment of the STI 4Cs — Character, Change-adept, being a good Communicator, and a Critical Thinker — the required skills and attitude of top industries worldwide. The materials were also Outcome-Based Education (OBE)-aligned with assessment tools, rubric, and performance tasks. Standardized Periodical Examination

The Standardized Periodical Examination for the preliminary, midterms, pre-finals, and finals period, which used to be outsourced to a third party, is being developed by STI ESG’s Academic Research Group starting in SY 2015–16. In its first year, the group developed 550 exams in the first semester and 523 exams in the second semester. For SY 2016–17, the group prepared 646 exams in the first semester and 538 exams in the second semester.

Milestones

STI ESG remains steadfast in its commitment to strive for academic excellence that is directed towards the development of the institution and the improvement of the quality of its students and graduates. International Organization for Standardization 9001:2008 (ISO 9001:2008)

In SY 2014–15, STI ESG received its ISO 9001:2008 certification for its Learning Delivery System. This system covers development of tertiary level courseware and curriculum, faculty training, and faculty certification. The network has worked to fulfill the requirements that included extensive research; training sessions on proper documentation and internal quality audit; documentation of policies, processes, and work instructions; and orientations given to STI ESG employees. The ISO 9001:2008 is an international certification that indicates an institution’s effectiveness and consistency in managing and carrying out its system regulation. The ISO certification has likewise verified the institution’s world-class performance in its education delivery. Senior High School Early Registration To help prepare the incoming Grade 11 students in choosing the right track, DepEd released DepEd Order No. 41, series of 2015 titled “Senior High School Guidance Program and Early Registration.” This aims to guide Grade 10 students or Senior High entrants in coming up with informed decisions regarding their choice of track and specialization for the Early Registration from October 19 to November 13, 2015.


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STI ESG collaborated with DepEd and conducted career guidance and orientation seminars for Grade 10 students in various public and private high schools nationwide. During the registration period, all Grade 10 students in all public and private high schools were encouraged to submit their choice of school and SHS track to their respective class advisers. The Grade 10 class advisers in public schools were then tasked to register their students for SHS and submit the learners’ preferences through the SHS registration module in the Learner Information System (LIS) of DepEd. In addition, aligned with DepEd’s objectives to assist students with their decisions, STI developed a tool called the Student’s Career Opportunity and Personality Evaluator or SCOPE. It is a unique computerized program that would help Grade 10 students find the career that best fits their strengths, interests, and personalities. With the assistance of a Guidance Counselor, incoming Senior High students will get a free comprehensive report in less than 30 minutes that can assist them in making an important decision for their future. As a result of STI ESG’s marketing efforts in the early registration campaign for SHS, a total of 30,917 Grade 10 students registered with STI ESG with 37,571 officially enrolled for SY 2016–17. Senior High School Graduation

STI ESG held its 1st Senior High School Graduation with 706 graduates from 36 campuses nationwide on April 8, 2016 at the STI Academic Center Global City in Taguig. The graduation ceremony was attended by the DepEd Regional Director for NCR, Dr. Ponciano Menguito, and DepEd Assistant Secretary for Curriculum and Instruction, Mr. Elvin Uy. Meanwhile, for SY 2016-17, 364 Grade 12 students marched to their Senior High School Graduation ceremony that was held within their respective schools. Partnership with DepEd and other Educational Institutions

As the largest pioneer school in Senior High School, STI ESG was invited by DepEd to share to the NCR Regional Directors, Division Superintendents, and Division Assistant Superintendents its wealth of knowledge and experience in implementing the Senior High School program in its 76 campuses nationwide: DepEd NCR Conference Room in January 2015, TYTANA College in July 2015, Polytechnic University of the Philippines San Juan campus in October 2015, and Manila Ocean Park in Pasay City and Roosevelt College in Marikina, both in November 2015. In addition, during the K to 12 Convergence at Lucent Hotel in June 2015, STI was given a plaque of recognition for being one of DepEd’s partners in the latter’s K to 12 anniversary celebration. Ads Standards Council (ASC)

The Ads Standards Council is an organization that aims to promote truth and fairness in advertising through self-regulation. ASC also handles the screening of all advertising materials and settlement disputes regarding advertising content. In December 2015, a complaint was lodged in ASC against STI ESG for its claim of “Pioneering the Largest Network of Senior High Schools.” After careful review, ASC ruled that the complaint against STI ESG was null and void.

Leaders Convention

Held at Henann Resort Alona Beach in Bohol from April 27 to 29, 2016, the 29th Annual STI Leaders’ Convention tackled the ongoing implementation of the Senior High School program and its effect on the curriculum of the tertiary programs. Rhodora Angela Fernandez-Ferrer, Executive Director of Private Education Assistance Committee (PEAC) National Secretariat talked about their


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organization’s role in DepEd’s subsidy program for the incoming Senior High School students who opted to enroll in a non-DepEd school. Atty. Julito D. Vitriolo, on the other hand, discussed the current CHED Commissioners’ en banc resolution on the curricular design for tertiary programs vis-à-vis Senior High School programs. The convention was attended by the STI ESG Executives, School Leaders, School Operations Managers, and Senior School Administrators.

PeopleSoft Campus Solutions (PSCS)

Oracle’s PeopleSoft Campus Solutions is a student administration system that facilitates student admission, enrollment, assessment, and grading, among others. Paired with Report Services, a web-based application hosting the reportorial requirements of STI ESG, the PSCS was launched in SY 2015–16 to STI’s network of campuses. It catered to both the college and senior high school students of STI ESG. Available in real time, the STI schools are able to access numerous reports that they can also modify according to their own requirements. The reports are categorized into four (4) — Academics, Financials, Enrollment, and Government-mandated reports — using the SQL Server Reporting Services 2008 R2. STI eLearning Management System

In SY 2015–16, STI ESG launched the STI eLearning Management System (eLMS), a software application running on Amazon cloud, to better manage the delivery of educational courses and/or training programs to its students. The curricular course materials aim to augment classroom learning while the extra-curricular course materials are prepared to further nurture student development. The STI eLMS features a built-in support for collaboration through various tools such as wikis, forums, and discussion groups; an internal messaging system with bidirectional support for emails and text messaging; and a built-in portfolio system which students can use to collect works to support learning and/or achievements. With STI eLMS, STI students can now complete their lessons at their own pace, wherever they are.

iLearn and Share

In SY 2015–16, STI ESG introduced iLearn and Share (iLS) activities to its Senior High School students. These are performance tasks wherein students are assessed based on their products and/or performance, which serve as proof of how well they understood and learned the task. Students can then apply their learnings to real life situations.

Education Centers Upgraded to Colleges

STI Colleges Laoag and Dipolog were granted college status by CHED in SY 2014–15 and STI College Dumaguete in SY 2015–16.

Faculty Achievements

In SY 2016–17, Accounting faculty members underwent a two-day training on the Certified Accounting Technician (CAT®) Level 3 where 10 faculty members successfully passed CAT® Level 3 examination and are eligible to become Certified Accounting Technicians. Select faculty members also underwent a five-day training on Huawei Certified Network Associate Certification where one faculty member passed the certification examination.


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Meanwhile, Maria Ana Eloisa Sambahon of STI College Balayan has been recognized as a TESDA Assessor for Food and Beverage Services NC II. Moreover, Jay Tiabayan, a faculty member of STI College Lipa, placed 2nd in Photojournalism (Filipino) under the School Paper Advisers category in the Regional School Press Conference 2016.

Student Achievements

In SY 2016–17, two STI students were chosen as finalists of their respective regions and were included in the honorable list of Ten Outstanding Students of the Philippines: Mary Grace Glorydell Sayo, a BS Business Management student of STI College Baguio, and Brian Gomez, a BS Computer Science student of STI College Ortigas-Cainta. Former 2012 Mr. STI 2nd runner-up, Karan Singdole of STI College Santa Rosa, also competed in another pageant and successfully became the first winner of the Man of the Year Male Pageant held in Indonesia. Grade 11 students of STI College Balayan and STI College Lipa, on the other hand, participated in the Divisional School Press Conference (DSCPC) 2016. From STI College Balayan, Marico Yamada won first place in Sports Writing (Filipino) and secured a place in the Regional School Press Conference 2016, Jerome Umandal placed 5th in the Science and Health Feature Writing (English), David Amiel Signo placed 7th in Sports Writing (English), and Lennox Rolly Evander Nioko placed 10th in the Editorial Writing (English). The following students of STI College Lipa also performed well in the DSPC: Roselyn Mosca placed 2nd in Photojournalism (Filipino), Jirmalyn Recio placed 2nd in Science and Health Feature Writing (English), Klarisse Joyce Lipit placed 4th in Copyreading (Filipino), and Ceejay Titular placed 4th in Editorial Cartooning (Filipino). Students of STI College Lucena likewise stepped up and showed off their skills in various activities. Grade 11 students Arabylle Abuel, Rosalinda Perez, Angelica Gratuito, and Rowena Ricamara were chosen to participate in the 2nd MVP Future Thought Leaders’ Summit 2016, a leadership program for the youth. Jonathan Dave Tena, a 4th year BSIT student, joined the Private Schools Athletic Association (PRISAA) and won the gold medal for the 400-meter freestyle, the silver medals for the 200-meter breast stroke, 200-meter back stroke, and 200-meter freestyle, and the bronze medal for the 50-meter freestyle. STI’s Hospitality Management students wowed the judges with their culinary skills in different cooking competitions. The team of Nilo De Paz, Macgil Bayog, and Shindler Guinte, all 2nd year Hospitality and Restaurant Services students of STI Calbayog, joined the 4th Tinapa 101 Cookfest and were declared champions. Students of STI College Muñoz-EDSA also joined the 4th Inter-School Culinary Competition with the theme “Pasta Dish with a Twist” where Jaymar Gultia, Jezzel Layug, and Ninia Camila took home the top prize. STI College Cotabato’s BS Hospitality and Restaurant Management students Crystal Jade Abella and Sheila May Yap were also declared champions in the Mayor Guiani Culinary Cup 2016. In addition, BS Computer Engineering student Ramadin Uday won in the poster making competition of the Young Southeast Asian Leaders Initiative while Katherine Mae Cabrera, a BS Tourism Management student, was awarded with the 2nd runner-up title in the Mutya ng Kutabato 2016. STI’s BS Information Technology (BSIT) students also amazed their mentors in UnionBank’s U:HAC 4.0 STI Edition, a 24-hour non-stop coding marathon. The group of Steven Lim, Exequiel Ponce, Carlo Cuevas, Julius Cervantes, and Willison Velasco of STI College Caloocan emerged as champions with their Union Mobile System app that seeks to eliminate long lines and queuing. On the other hand, STI


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College Muñoz-EDSA’s Jonel Belandres, Erick John Reyes, and Ryan Amian placed 2nd for developing the Rising Farmers app; while Daniel Eduard Andal, Joshua Sahagun, and Renz Paolo Yedra of STI College Tanauan rounded up the top 3 for the app called Take Your Time. Students from STI College Makati also shone at the 6th IT Skills Olympics. Placing 3rd in .NET Programming category were Jeffrey Calara and King Anthony Retaga. Adrian Legaspi and Deejay Salva also placed 3rd in the Java Programming category. Faculty Development and Certification STI ESG provides its faculty members development programs that are designed as a system of services, opportunities, and projects that assist faculty members in acquiring competencies necessary to perform their respective function effectively.

The Courseware-based trainings (CBT) are training programs held during semestral and summer breaks for all faculty members from wholly- owned and franchised schools that aim to improve the teaching methodologies and content knowledge for specific courses. Courses offered for training vary from year-to-year depending on the results of the needs analyses of the faculty members of the whole STI ESG network. In SY 2013–14, the CBT focused on courses such as AMADEUS Basic Certification, Microcontroller System, HRM System, QuickBooks, Broadband Technology, Mobile Technology, Fundamentals of VB (using VBA), Advance Microcontroller System, Tour Guiding Services, Tourism Promotion Services, and Travel Services and had 403 participants nationwide. In SY 2014–15, there were 94 participants for the courses C# (C Sharp) Programming, QuickBooks, and Radio/TV Principles and Practices with Production. In addition, 65 faculty members underwent industry-provided trainings and certifications during SY 2014–15, on Amadeus Basic Certification, Max’s Training Online, and TATA Group’s Accounting and Finance Course.

On the other hand, in SY 2015–16, there were 155 participants in the Huawei Certified Network Associate (HCNA) Training and Gatessoft’s Genesis Property Management System (PMS) and Point-of Sales (POS) System. Trainings were likewise conducted to help improve the faculty members’ knowledge of teaching methodologies and use of technology. Among these trainings were the STI eLMS with 72 participants; Outcome-Based Education for Tourism and Hospitality Management (THM) Program Heads with 69 participants; and Faculty Capacity Development for Senior High School Implementation which was attended by 145 Academic Heads and Assistant Principals. For SY 2016–17, 140 SHS faculty members participated in the Faculty Capacity Development for Senior High School, 128 participants in the 21st Century Life Education in an OBE System for the tertiary faculty members, 58 participants in the Core Skills Professional Development Program conducted by the British Council-Philippines, and 27 participants in QuickBooks which is in partnership with Waine’s Software Technologies.

STI ESG also administers a Faculty Competency Certification program (FCC) which serves evaluate a faculty member’s knowledge of the course to ascertain that he/she has the minimum level of competence needed to teach that course. Certification requirements include passing a comprehensive certification exam and garnering above average faculty evaluation ratings from superiors, peers, and students.


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The number of FCCs granted by STI has continually increased from SY 2014–15 with 1,121 FCCs granted and 2,748 certificates released to 1,306 FCCs and 2,858 certificates in SY 2015–16, to 1,740 FCCs and 3,483 certificates in SY 2016–17. In addition, STI ESG opened the Graduate Studies Assistance Program for Master in Information Technology for part-time full-load faculty members. This assistance program features a socialized tuition scheme based on the enrollee’s capacity to pay thus the faculty member will only pay a portion of the tuition and other school fees for every semester. In SY 2015–16, 24 faculty members were enrolled during the second semester wherein seven (7) of them graduated in May 2016. All seven (7) graduates presented their capstone project paper in international conferences held in Bulacan and Baguio in April and May 2016. Their papers were also published in various recognized research journals. Mr. Augusto Malapit of STI College Dasmariñas received the 2nd Best Paper Award from the International Conference on Education, Psychology, and Social Science 2016. Student Development

STI ESG believes that learning should not be confined within the four corners of the classroom. With the effort to ensure that its graduates will be equipped with a well-rounded education that will help them reach their highest potential, STI ESG allows students to explore, enjoy, and learn through a wide array of academic, co-curricular, and extra-curricular activities. Halalan 2016 In partnership with ABS-CBN’s advocacy arm Bayan Mo, iPatrol Mo (BMPM), STI students went through preparations such as workshops on citizen journalism and Voter’s Ed prior to election. And on Election Day, the students became budding journalists as they received and verified reports about the ongoing elections via social media platforms such as Facebook and Twitter. The partnership between STI and broadcasting giant ABS-CBN has now spanned for almost two decades and has molded the students to be more aware and involved in shaping the country’s future.

The STI National Youth Convention (STI NYC)

Since 1995, the STI NYC has been an annual venue where students are provided with opportunities to learn the latest trends from industry leaders and motivate them to apply the values and information they have gained with the objective of contributing to their school and community. The theme and topics vary every school year but always focus on alternative and innovative learning to discover the latest trends in technology, acquiring the most in-demand and job-ready skills, and enhancing specific values anchored on attributes that a model citizen should exhibit. In SY 2014–15, there were 34,574 attendees at the STI NYC held in Baguio, Bacolod, Cebu, Cagayan de Oro, Davao, General Santos, Iloilo, Legazpi, and Metro Manila. As a means to continually improve the quality of the STI NYC, this year, the students were grouped per session according to their tracks, namely, ICT and Engineering; Business and Management; and Tourism and Hospitality Management. The topics are now more specialized to the track of the student-participant.

In SY 2015–16, the number of attendees increase to 39,467 with the convention still held in nine different areas with Legazpi replaced with Naga. Meanwhile, in SY 2016–17, there were 36,587 students who attended the STI NYC that was held in 12 venues: San Fernando in Pampanga, Legazpi, Baguio, Cebu, Kalibo, Bacolod, Sta. Rosa in Laguna, Pasay, North EDSA, Cagayan de Oro, Davao, and General Santos. However, due to the moratorium issued by CHED and DepEd on educational trips,


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the last three legs of the convention (namely, Cagayan de Oro, Davao, and General Santos) were cancelled. Tagisan ng Talino (TNT)

The TNT is an annual academic competition that tests the competencies of students on impromptu speech, essay writing, programming, cooking, cake and table design, and general knowledge. Over the years, specific competitions comprising the TNT have been enhanced to ensure that the competitions’ objectives are met.

For SY 2013–14, the participants numbered 909 students in eight (8) various competitions and increased to 933 in SY 2015–16. For SY 2016–17, the participants competing in the same categories reached 958.

Tagisan ng Sining (TNS)

The TNS is an annual competition that aims to challenge the students’ artistry, creativity, and originality in the field of photography and music video making. In SY 2014–15, 149 students from STI campuses nationwide participated in the TNS. The number of participants significantly increased to 211 students in SY 2015–16 and then to 222 in SY 2016–17. Talent Search

The STI Talent Search uncovers the innate talent of STIers nationwide — from singers and musicians to dancers and up-and-coming models. Every year, all STI campuses nationwide send a total of over 100 contestants to compete in nine (9) regional sites before advancing to the National Finals in events like the STI Singing Idol competition, Battle of the Bands, Hataw Sayaw Dance competition, and the search for Mr. and Ms. STI.

In SY 2014–15, the event had a delegation of 20,065 students to celebrate the founding anniversary of STI while in SY 2015–16, the attendees slightly increased to 21,177 students. In SY 2016–17, there were 23,308 who witnessed the commemoration of STI’s 33rd Anniversary.

Student Leaders’ Congress (SLC)

The SLC is a leadership program that nurtures outstanding student leaders from STI campuses nationwide. It aims to hone the leadership skills and potential of students to become catalysts for positive change in their communities. Held at the STI Academic Center Ortigas-Cainta in SY 2015–16, 40 delegates from t h e STI network of schools participated. In SY 2016–17, the SLC was once again held at STI Academic Center Ortigas-Cainta and the participants slightly increased to 47.

National Basketball Tournament (NBT)

To promote sportsmanship, camaraderie, and team spirit amongst students, STI conceptualized the National Basketball Tournament, a sports program for STI basketball teams nationwide. In SY 2014–15, STI College Global City won the 1st NBT while in SY 2015–16, STI West Negros University grabbed the championship title besting 51 teams. On its third year, 51 schools once again joined the tournament with STI College Santa Rosa declared as champions.


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Women’s Volleyball Challenge (WVC) This is a sports program intended for the female students of STI. Aside from developing the physical attributes of the students, the WVC also aims to instill in them the value of discipline and further strengthen their character. In SY 2016–17, 24 schools joined the 1st WVC with STI College Sta. Maria besting all the other teams and recognized as the tournament’s champions. Post-Graduation Report The STI Alumni Relations, Placement, and Linkages (STI APL) department conducts a survey of the graduating class to track employment rate 12 months after graduation. This is facilitated through each STI School’s Alumni and Placement Office. For SY 2016–17, 52% of the surveyed graduates were employed within six months after graduation and 67% were employed after one year. Interactive Career Assistance and Recruitment System (ICARES) Still as part of the job placement assistance of STI, the STI APL institutionalizes partnerships locally and internationally to help increase the employability of graduates through the Interactive Career Assistance and Recruitment System. The ICARES is an exclusive job search system for STI graduates that facilitates the easy dissemination of STI’s partners for their placement opportunities and provision of candidates (STI graduates) to fill in job openings. Partners for the job placement of STI graduates are enabled to post their job openings and request for lists of graduates through www.i-cares.com or the ICARES at no cost. Registration with ICARES is required for all graduating STI students. In SY 2014-15, 112 partners utilized the ICARES where 85 of its partners were able to post job vacancies on the ICARES website. These numbers increased in SY 2015–16 to 136 partners with 91 partners posting job opportunities on the website. In SY 2016–17, the partner companies went up to 163 with 131 utilizing the ICARES website. On-the-ground school activities such as job fairs are conducted for recruitment purposes and to provide employment preparation seminars to graduating STI ESG students. 31 institutional partners participated in STI ESG job fairs in SY 2014–15, 34 in SY 2015-16, and 38 in SY 2016–17. Schools nationwide also have local partnerships within their community to provide more avenues available to graduating students. The STI Distinguished Alumni Awards SY 2014-15 marks the launch of the STI Distinguished Alumni Awards (STIDAA). STI ESG campuses nationwide nominated alumni who have received distinction and achievement in their chosen field. The winners — Jose Agustinho Salvador, Janice Lagundi, Felix Emradura, Michael Cunanan, and Edward Czar Aquino — were awarded on April 30, 2015 during the Achievers’ Night of the 2015 STI Leaders’ Convention held at the Boracay Regency Hotel Resort and Spa. On its second year, another batch of exemplary alumni were recognized on April 28, 2016 at the Hennan Resort Alona Beach, Bohol. These are Raquel Gamboa, Benjamin Carbonell, and Julius Serrano. On its third year, the STIDAA awarded a new group of alumni who stood out from the other nominees. Elmar Dalope, Melmar Quejada, Gretchen Abaniel, Reggie Camoñas, Janine Pring, Matio Morales, Mark Ian Ignacio, and Lambert Armada were honored on April 20, 2017 at the Okada Manila.


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Institutional Linkages STI ESG establishes, maintains, and promotes partnerships with the legitimate members of the industry to increase our students and graduates’ employability under the institutional linkages. Through these linkages, opportunities such as on-the-job training (OJT), employment, courseware enhancements, and faculty development are made available to STI ESG, its students, and partners. In addition, activities such as mock interviews, employment preparation seminars, job fairs, scholarships, postings of employment opportunities, and faculty trainings are also made possible.

European Innovation, Technology, and Science Center Foundation (EITSC), initiative of the European Chamber of Commerce of the Philippines (ECCP)

EITSC's work immersion program aims to provide training opportunities to students and develop their skills as early as Senior High School in the fields of business, production, and services. Through this partnership, STI ESG's academic curricula will be aligned with the industry requirements to cultivate the student's core competencies. Global Max’s Services Pte. Ltd. (Max’s) STI ESG students will now be better equipped with the knowledge and skills needed in the industry upon graduation through the integration of Max’s expertise in the industry with the courseware materials of HRM and HRS Programs, and through supervised training by Max’s that will increase the chance of STI ESG students to become members of the organization upon graduation.

Following the partnership, student training is taken to a higher level as Max’s online modules will be integrated with STI ESG’s curriculum to incorporate industry-based practices. Max’s will also provide STI ESG’s HRM and HRS students with an OJT program that seeks to train the students in practical procedures and techniques on handling restaurant management operations, customer service orientation, cuisine-menu preparations, and other technical skills. British Council

Outcome-Based Education (OBE) is essentially designed to focus on what the students should demonstrate and possess as knowledge, skills, and values after the completion of each course. In OBE, students should be able to shape themselves by starting with the desired end in mind and working backwards to innovate the learning activities and methods of assessment.

The British Council and STI ESG agreed to collaborate towards innovative learning by holding a training workshop for STI ESG’s Content Developers for both tertiary and Senior High School to equip them with skills in improving STI ESG’s OBE and their methods of assessing the students’ OBE performance.

National Institute of Accounting Technicians (NIAT)

Through this partnership, STI ESG has earned the recognition of the business and accounting courses under the Bachelor of Science in Accounting Technology (BSAT) program, qualifying STI ESG students for the three-part CAT® licensure examinations without additional training that is required for BSAT graduates of non-recognized schools.


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The recognition STI ESG received from NIAT not only acknowledges STI ESG's design of the BSAT program, but also helps propel the success of the accounting technology career of students undergoing the program. Passing each level of the exams confers an honorific that is recognized by the Institute of Certified Bookkeepers of UK, Institute of Certified Management Accountants (ICMA) in Australia, and Association of Accounting Technicians of UK, giving the passers a promising future abroad.

Department of Labor and Employment (DOLE)

DOLE exempts STI ESG schools from applying for a job fair permit provided that it will be held within the school premises. In addition DOLE will provide a speaker to join our schools’ job fair events to educate our graduates of their rights and responsibilities as prospective employees to become productive members of society. In return, STI ESG extends its assistance by promoting and cascading DOLE’s mandate of ensuring the jobseeker’s protection in any employment facilitation related activities to its schools nationwide.

Solaire Resort and Casino

The alliance between STI ESG and Solaire Resort and Casino will provide internship programs to qualified STI ESG students in any 4-year program from any campus nationwide. This program includes the following: (1) an orientation to prepare interns; (2) a formal training in a real life workplace; and (3) other activities conducted by the facilitators to help gauge the students’ practical aptitude. Their performances will be monitored by industry experts through monthly and term-end evaluations. Upon the completion of the program, interns will be granted certificates to recognize their participation and accomplishment. With the promise of providing students with a memorable and unparalleled internship experience, interns can look forward to gainful learning at Solaire. Zuellig Pharma Asia Pacific Ltd. Phils.

Zuellig Pharma Asia Pacific Ltd. operates as a subsidiary of The Zuellig Group, Inc. The collaboration will provide internship opportunities to STI ESG students in any 4-year program from any STI ESG Campus. The Asia Foundation

STI ESG, led by Atty. Monico V. Jacob, Chief Executive Officer, signed a Memorandum of Agreement (MOA) with Asia Foundation led by its Country Representative Dr. Steven Rood on August 19, 2015. The partnership is another milestone in STI’s advocacy to empower the future through educational opportunities for public school teachers, students, and disadvantaged youths. In this collaboration, STI ESG was allocated with 66 US-produced reference books for the school’s library. In return, Asia Foundation will match t h i s w i t h another set of reference books for donation to one public high school. STI ESG schools likewise each donated $132 to Asia Foundation to ensure the continuance of this program. Through this partnership, STI ESG was able to donate books to different schools in Metro Manila and South Luzon in SY 2015–16, and to schools in Northern Luzon and Mindanao in SY 2016–17. Tiger Resort, Leisure & Entertainment, Inc. Tiger Resort is the newest and largest gaming and entertainment destination in Asia. It is also the company behind Okada Manila, a casino resort and hotel complex located in the fast-rising


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Entertainment City. STI’s partnership with Tiger Resort will open career opportunities for STI graduates as they get access to the resort’s job openings while the students will be able to participate in its internship program. Tiger Resort will also review and assist in the curriculum and courseware development of STI’s Hospitality Management programs to ensure that these are up to date with current business practices and industry standards. Scholarships STI ESG partnered with various companies to aid in scholarship programs and increase employment opportunities for STI ESG’s graduates. Gift of Knowledge

To provide educational opportunities to deserving individuals who have no means of pursuing post-secondary education, STI ESG, through the STI Foundation for Leadership in Information Technology and Education, Inc. (STI Foundation), strengthens its partnership with various TV programs from different TV networks. There were 59 scholars registered through the TV programs in SY 2014–15, 22 scholars in SY 2015–16, and 53 scholars in SY 2016–17.

Sponsored Scholarship Programs

STI ESG and STI Foundation continually strengthen partnerships with corporations and government organizations to be able to provide scholarship programs to support the tertiary education of deserving individuals.

The STI Foundation and its partners were able to support 156 scholars nationwide in SY 2014–15, 169 scholars in SY 2015–16, and 187 scholars in SY 2016–17. Community Extension and Outreach Programs

Given the national reach of STI ESG, the company has taken it upon itself to hold socially responsible activities that are aimed to better the communities that individual campuses belong to, and at the same time, develop a positive environment that will be beneficial to all stakeholders.

The STI Foundation

The STI Foundation aims to contribute to the improvement of the country’s educational system through programs and projects that address the digital divide and promote excellence in education.

Alternative Learning System (ALS)

STI Foundation responded to the call of DepEd for the private sector’s participation and support in their ALS program, a non-formal education to help learners who wish to complete their basic education. The ALS program also aims to address the problem on the growing number of students who drop out of school every year. STI ESG then reached out to out-of-school youth aged 15 and above who still have not finished their secondary education and cannot afford to go through formal schooling. The ALS sessions are conducted every Saturday and employ blended and collaborative modes of instruction (face-to-face instructions), e-learning materials (e-Skwela), and performance-based assessment to prepare and


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equip the ALS learners with the knowledge required to pass the Accreditation and Equivalency (A&E) Test given by DepEd. In SY 2015–16, out of the 29 ALS Learners who took the A&E test, 12 passed the test and received certificates equivalent to high school diploma. Meanwhile, for SY 2016-17, there are 169 ALS Learners currently preparing for the A&E test scheduled in October 2017. The STI Mobile School

The STI Mobile School is a fleet of tourist-sized buses that have been converted into roving computer laboratories. E a c h b u s is equipped with a state-of-the-art computer laboratory with internet access, multimedia computers, LCD monitors, sound system, and other top-of-the-line computer equipment.

Since SY 2011–12 until SY 2016–17, the STI Mobile School has travelled to 1,171 sites and trained 164,667 participants nationwide. Today, a total of six mobile school buses travel across Luzon, Visayas, and Mindanao.

Adopt-a-School Program

STI ESG received a Certificate of Appreciation from DepEd for being one of its active partners in the implementation of the Adopt-a-School program. With this alliance, STI Mobile School or the computer laboratory on wheels was utilized to provide alternative learning facilities to DepEd’s high schools in far-flung communities to teach basic skills on computer concepts, GNU Image Manipulation Program (GIMP), multimedia animation, audio editing, and movie presentation through ICT-enhanced training sessions.

STI Foundation extended assistance to various special community development projects, outreach programs, and humanitarian services in SY 2015–16 to help tackle the needs of the disadvantaged sectors and other organizations.

In support of the DepEd’s back-to-school efforts, STI ESG, through its advocacy arm STI Foundation, donated over 1,400 sets of school uniforms to public schools in Mt. Pulag, Bukidnon, and Maguindanao. In addition, assorted books, uniforms, and merchandise items were donated to Department of Social Welfare and Development (DSWD) Region 4-A, Friendship Home Fr. Luis Amigo in Manila, Bantay Batas DASALKA in Antipolo, and Mandaluyong National High School. Moreover, the turnover of donations coincided with DepEd’s Brigada Eskwela at Carlos L. Albert High School in Quezon City on May 20, 2015 where STI ESG employees volunteered along with other private partners including Meralco Foundation, Maynilad, and Samsung Foundation.

Lastly, STI Foundation collaborated with Caritas Manila’s Segunda Mana Project in the latter’s goal of generating in-kind donations such as clothes, toys, shoes, and others to be given away to the recipients of the Caritas Manila. One Million Lapis Campaign STI Foundation worked with the DepEd, DSWD, Department of Interior and Local Government (DILG), and other agencies in support of the One Million Lapis campaign organized by the Council for Welfare of Children (CWC). This advocacy aims to collect one million pencils to be given to underprivileged students in elementary schools nationwide. STI Foundation along with the STI ESG network of schools turned over more than 35,000 pencils to DepEd and CWC on November 20, 2016.


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Business of Issuer STI ESG and its subsidiaries, as educational institutions, derive its main revenues from tuition and other school fees from its owned schools and royalties and other fees for various educational services provided to franchised schools. STI ESG’s college campuses offer associate/baccalaureate degree and technical/vocational programs in ICT, arts and sciences, business and management, education, engineering, hospitality and tourism management, and healthcare. These programs are accredited by CHED and/or TESDA. The education centers of STI ESG offer technical/vocational diploma, certificate, and short-term courses for computer programming, computer technology, software applications, and office administration, among others. The programs in the education centers are accredited by TESDA. All 76 schools in the STI ESG network have also been granted DepEd permit to offer Senior High School. STI ESG School Programs

BS in Computer Science BS in Information Technology BS in Information Technology major in Network Engineering BS in Information Technology major in Digital Arts BS in Accounting Technology BS in Business Management major in Operations BS in Office Administration BS in Office Administration with Specialization in Customer Relations BS in Real Estate Management BS in Culinary Management BS in Hotel and Restaurant Management BS in Travel Management BS in Tourism Management BS in Computer Engineering AB Communication Bachelor of Secondary Education major in Mathematics Bachelor of Secondary Education major in Computer Education Master in Information Technology 3-year Hotel and Restaurant Administration 2-year Information Technology Program 2-year Associate in Computer Technology 2-year Hospitality and Restaurant Services 2-year Tourism and Events Management 2-year Computer and Consumer Electronics Program with Broadband Technology 2-year Multimedia Arts Program Senior High School


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Senior High School Program In 2014, DepEd granted permit to offer Senior High School to 67 STI ESG schools. In June 2014, 32 STI ESG schools were able to pilot Senior High School with a total of 1,195 students. For SY 2015-16, four more schools started their Senior High School program and the total number of students increased to 1,577. In SY 2016-17, all 76 schools in the STI ESG network have been granted the DepEd permit to offer Senior High School and number of students significantly went up to 37,571. The SHS tracks offered at STI schools are:

1. Academic Track Accountancy, Business, and Management Humanities and Social Sciences Science, Technology, Engineering, and Mathematics General Academic Strand

2. Technical-Vocational-Livelihood Track

ICT Strand with specializations in: o Computer Programming o Animation o Illustration o Broadband Installation o Computer Hardware Servicing o Broadband Installation

Home Economics Strand with specializations in:

o Commercial Cooking o Cookery o Bartending o Food and Beverage Services o Tour Guiding Services o Travel Services o Tourism Promotions Services o Front Office Services o Housekeeping

Industrial Arts Strand with specialization in:

o Consumer Electronics Servicing Professional Accreditations

International Organization for Standardization 9001:2008 (ISO 9001:2008)

In November 2014, STI ESG was recommended by the ISO certifying body TÜV Rheinland Philippines Inc. for ISO 9001:2008 certification. On February 5, 2015, STI ESG received the official ISO 9001:2008 Certification for its Learning Delivery System. The ISO 9001:2008 certification is a milestone for the institution’s thrust towards academic excellence by reaching global standards in its learning delivery system.


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Employees STI ESG has 2,223 employees, 1,535 of whom are faculty members, 465 non-teaching personnel, and 223 employees from the main office. STI ESG provides employees with development programs that assist them in effectively carrying out their jobs and prepare them for career advancement.

Item 2. PROPERTIES STI ESG has an extensive list of properties, either owned or under long-term lease which serve as sites for campuses, warehouses and investment. The following table sets forth information on the properties that STI ESG owns.

LOCATION

TYPE (Owned unless otherwise

indicated) USE

AREA (IN SQ.M)

LOT FLOOR

Batangas Land and building School Campus 6,564 5,670

Cainta, Rizal Land and building School Campus 39,880 11,727

Administration Building

- 5,291

Calamba Building Land is on long term lease

School Campus 6,237 7,368

Caloocan Land and Building School Campus 15,495 11,832 Carmona, Cavite Land and building School Campus 6,582 3,497 Cubao Land and Building School Campus 3,768 9,881 EDSA, Pasay Land School Campus 3,911 -

Fairview, Quezon City Land and buildings A & B School Campus 1,208 4,167 Buildings C &D are on long term lease

School Campus - 1,338

Fort Bonifacio, Global CityBuilding Land is on long term lease


Kalibo, Aklan Land School Campus 1,612 -

FUNCTION NUMBER OF EMPLOYEES

Main Office

Senior Management 13 Managers 63 Staff 147SubTotal 223

STI Schools

Teaching personnel (wholly-owned schools) 1,535 Non-teaching personnel (wholly-owned schools) 465SubTotal 2,000

TOTAL 2,223


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Kauswagan, Cagayan de Oro

Land and building School Campus 17,563 3,415

Las Piñas Land School Campus 10,000 9,325 Lucban, Baguio Land and building School Campus 731 1,726

Lucena Building Land is on long term lease


Naga Land and building School Campus 5,170 4,506 Novaliches Land and building School Campus 4,983 7,436 San Jose del Monte City, Bulacan

Land School Campus 4,178 -

Valencia, Bukidnon Land and building School Campus 300 1,166 Ternate, Cavite Townhouse Training Center 107 - BF Homes, Las Piñas (GS) Land and building – GS Warehouse 4,094 2,921 BF Homes, Las Piñas (HS) Land and building – HS Warehouse 3,091 1,851

Almanza, Las Piñas 3 Condominium Units (37.2sqm/unit)

Investment Property - 112

Ayala Avenue, Makati City

Condominium Units (4th, 5th & 6th floors)

Investment Property - 3,096

Caliraya Springs, Cavinti Laguna

Land Investment Property 948 -

Cebu City Land Investment Property 1,100 -

Gil J. Puyat Avenue Makati City

Condominium Units (10th, 11th, 12th, and Upper Penthouse)

Investment Property - 7,924

Sto. Tomas, Baguio Land Investment Property 512 - Listed in the table below is the campus ownership of franchised schools as of SY 2016-17.

Owned by the School

Owned by STI Franchisee Leased from other parties

1 Balagtas 10 Alabang 19 Alaminos 29 Muñoz 2 Bohol 11 Baliuag 20 Angeles 30 Ormoc 3 Dasmariñas 12 Balayan 21 Bacoor 31 Parañaque 4 Koronadal 13 Cotabato 22 Calbayog 32 Pasay 5 La Union 14 General Santos 23 Cauayan 33 Recto 6 Malolos 15 San Francisco 24 Dipolog 34 Rosario 7 Santa Rosa 16 Sta. Maria 25 Dumaguete 35 San Fernando 8 Tacurong 17 Surigao 26 Ilagan 35 San Jose 9 Tanay 18 Vigan 27 Maasin 37 Tagaytay 28 Marikina 38 Tarlac

39 Zamboanga


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Campus Expansion Projects STI ESG decided to shift its focus on a more organic expansion instead of a geographical expansion. This direction is part of STI ESG’s commitment to continuously improve the delivery of education to its students — by ensuring that its schools house state-of-the-art facilities with spacious classrooms, top-of-the-line computer laboratories, and recreational facilities. Thus, STI ESG encouraged the schools to move from rented space into School-Owned Stand-Alone Campuses. For the last seven years, 11 new school facilities were constructed for 11 existing wholly-owned schools and this has resulted in the additional uptake of around 17,500 new students. STI ESG intends to continue this strategy and build new facilities for more schools. In Caloocan, a 10-storey building standing on a 15,495-square-meter property was unveiled on February 7, 2014 for the transfer of STI College Caloocan to its new home. Four school buildings were inaugurated in January 2015: the five-storey building of STI College Calamba and the newly renovated STI College Batangas on January 20, the nine-storey building of STI College Cubao on January 22, and the five-storey building of STI College Lucena on January 27.

The seven-storey building of STI College Las Piñas, on the other hand, was inaugurated on September 28, 2016. The building stands on a 10,000-square-meter property. Beginning April 2017, STI ESG held its ground breaking ceremonies on several properties as it marks the construction of six school buildings which are part of its expansion program. Lipa and Tanauan had their groundbreaking ceremonies on April 21, 2017. The 3,225-square-meter property at M.K Lina Street, Lipa City in Batangas will house a seven-storey structure which can accommodate as many as 6,750 students. Meanwhile, industry stalwarts Tony Tan Caktiong, chairman and founder of Jollibee Foods Corporation (JFC), Edgar "Injap" Sia II, chairman and CEO of Double Dragon Properties Corporation and CityMall Commercial Centers, Inc., and Eusebio H. Tanco, executive committee chairman of STI ESG, officially marked the construction of the first phase of the STI Academic Center Tanauan. The groundbreaking also marked the signing of a joint venture agreement among STI ESG, STI College Tanauan, Mr. Tan Caktiong, and Injap Investments, Inc. for the establishment of a farm-to-table school which shall offer courses ranging from farm production to food service. Designed to accommodate 5,400 senior high school and college students next school year, the new Academic Center will stand on a 25,114- square-meter property at Soledad Park Subdivision, Barangay Darasa, Tanauan, Batangas. The property is located in the main commercial area of Tanauan, Batangas.

Soon-to-rise at P. Celle corner EDSA, Pasay City is the nine-storey STI Academic Center Pasay-EDSA. The structure will stand on a 3,911-square-meter property and can accommodate up to 12,400 senior high school and college students. STI ESG marked the construction of the new STI Academic Center on May 9, 2017 in a groundbreaking ceremony. STI ESG also broke ground for two Academic Centers in Sta. Mesa, Manila and San Jose del Monte City, Bulacan on May 23, 2017. The 10-storey STI Academic Center Sta. Mesa will stand on a 4,252-square-meter property along P. Sanchez Street, Sta. Mesa in the City of Manila and can accommodate 10,000 senior high school and college students. On the other hand, the nine-storey STI Academic Center San Jose del Monte can house 6,000 students. It will rise on a 4,178-square-meter lot area at the Altaraza


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Town Center, a 109-hectare master planned urban community by Ayala Land, located in Quirino Highway, San Jose del Monte City, Bulacan. In Davao, a four-hectare property will house a seven-storey building. The campus is estimated to accommodate 6,000 students and will also have a basketball gym with a 1,500 audience capacity. Likewise, a number of franchised schools embarked on facilities expansion programs. Two franchised schools embarked on facilities expansion programs in SY 2013–14. The 3,500-square-meter property of STI College Malolos located along McArthur Highway was completed in time for the 1st semester of SY 2014–15. On the other hand, STI College Tanay broke ground on March 21, 2014 and started its classes on its new campus in the 2nd semester of SY 2014–15. The 1,200-square-meter property of STI College Vigan also had its groundbreaking in July 2014 and started its classes on the new campus in the 2nd semester of SY 2015–16. Meanwhile, STI College Bohol (formerly known as STI College Tagbilaran) had its inauguration on November 7, 2015. The four-storey building has a total area of 2,200 square meters. The new campuses are expected to be completed in time for the start of classes in June 2018. All of the improved campuses house state-of-the-art facilities, with spacious classrooms, top-of-the-line computer laboratories and recreational facilities for high quality academic delivery. The expansion of these campuses is part of STI’s commitment to continuously improve the delivery of education to its students and, at the same time, increase the total capacity of STI for further expansion in its enrollment base in the years ahead.

Item 3. LEGAL PROCEEDINGS

Girly G. Ico vs. Systems Technology Institute, Inc., et al. NLRC NCR Case No. 00-06-07767-04 National Labor Relations Commission

Systems Technology Institute, Inc., vs. Hon. Renaldo 0. Hernandez, Sheriff Raymond C. Lomugdang, and Girly G. Ico LER CN 10291-15

Systems Technology Institute, Inc., vs. Hon. Renaldo 0. Hernandez, and Girly G. Ico LER CN 10-303-15 National Labor Relations Commission

Girly G. Ico v. National Labor Relations Commission and Systems Technology Institute, Inc., and/or Monico V. Jacob (President & Chief Executive Officer), Jeanette B. Fabul (SR. VP Corporate Services Division), Peter K. Fernandez (SR VP Education Management Division), Yolanda R. Briones (Human Resources Management & Organization Development HRMOD) CA GR SP No. 147219 Sixth Division, Court of Appeals


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A former employee of STI ESG filed a Petition with the Supreme Court after the Court of Appeals denied the former employee's claims and rendered prior decisions in favor of STI ESG. On August 13, 2014, STI ESG received the Supreme Court's decision dated July 9, 2014 annulling the decision of the Court of Appeals and ordered that STI ESG reinstate the former employee to her former position and pay the exact salary, benefits, privileges and emoluments which the current holder of the position is receiving and should be paid backwages from the date of the former employee's dismissal until fully paid, with legal interest. On August 28, 2014, STI ESG filed its Motion for Reconsideration and on November 17, 2014, the Supreme Court issued a resolution which denied with finality STI ESG's Motion for Reconsideration. On January 5, 2015, STI ESG filed an Omnibus Motion and requested to move the case for review by the Supreme Court En Banc. On May 22, 2015, STI ESG received a notice from the Supreme Court which denied STI ESG's Omnibus Motion. As a result of the decision, STI ESG recognized provision amounting to ₱3.0 million representing the estimated compensation to be made to the former employee. On October 20, 2015, a Bank Order to release was issued to one of STI ESG's depository banks for the release of the garnished amount of ₱2.2 million. The bank released the garnished amount to the National Labor Relations Commission (NLRC). The garnished amount was put on hold for fifteen (15) days because of the filing of STI ESG's Petition questioning, among others, the Writ of Execution issued by Labor Arbiter, which was docketed as LER-CN-10291-15. While the Petition was pending for resolution by the NLRC and without any injunction order being issued by the said Commission, the garnished amount of ₱2.2 million was released to the former employee. On March 1, 2016, the former employee filed an Entry of Appearance with Manifestation/Motion for Computation dated February 24, 2016. In the said motion, the former employee sought for computation of her backwages, inclusive of monetary equivalent of leaves and 13th month pay from July 22, 2004 until the same is actually paid. In addition, the former employee waived the reinstatement aspect of the March 31, 2006 Decision of Labor Arbiter, and sought the payment of separation pay. As mentioned in an earlier paragraph, on October 19, 2015, STI ESG filed a Petition with the NLRC, docketed as LER-CN-10291-15, to (1) annul the Writ of Execution issued by the Labor Arbiter for the amount of ₱2.2 million, and (2) order the payment of separation pay in favor of the former employee instead of reinstatement as Chief Operating Officer of STI-Makati. In the said Petition, STI ESG asserted that the Writ of Execution was issued with undue haste when there were pending issues to be resolved by Labor Arbiter with respect to the computation of the judgment award of the former employee. In addition, Labor Arbiter cannot order the former employee to be reinstated as Chief Operating Officer of STI Makati because said position no longer exists. STI ESG averred that an order of separation pay in lieu of reinstatement should be issued in favor of the former employee. On October 28, 2015, STI ESG filed another Petition with the NLRC, which sought the inhibition of the Labor Arbiter from continuing the execution proceedings of the former employee's judgment award. In the said Petition, STI ESG alleged that the actions of Labor Arbiter showed partiality and bias in favor of the former employee. On October 29, 2015, STI ESG filed a Motion to Consolidate with the NLRC. In the said Motion, STI ESG moved that the aforesaid Petitions would be consolidated and resolved by the same Division of the NLRC.


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The former employee, thru her new counsel, filed two (2) Entry of Appearance with Motion for Leave (To Admit Attached Answer with Comment/Opposition) for the two (2) Petitions of STI ESG. In the said Comment/Opposition, the former employee averred that (a) the Writ of Execution was issued pursuant to the Supreme Court's Decision dated July 9, 2014 and (b) the acts of Labor Arbiter were above-board. On February 29, 2016, the Sixth Division of the NLRC issued a Decision wherein it, among others, nullified the Writ of Execution, and ordered the inhibition of Labor Arbiter. In the same Decision, the Sixth Division of the NLRC also set a guide for the enforcement of the judgment award in favor of the former employee, which provides, among others, that the computation of the backwages of the former employee shall be from May 18, 2004 until October 30, 2006. On March 29, 2016, STI ESG received the former employee's Motion for Reconsideration. In the Motion for Reconsideration, the former employee questioned the guide issued by the NLRC and the inhibition of the Labor Arbiter. On April 19, 2016, STI ESG filed a Motion for Leave (To Admit Comment and/or Opposition with Manifestation). In the Comment and/or Opposition, STI ESG defended the guide issued by the Sixth Division of the NLRC and the inhibition on the Labor Arbiter by, among others, asserting that the former employee's grounds for reconsideration of the Decision are based on misleading allegations, and misquoted orders and pleadings of the Corporation. STI ESG also manifested to that (1) it would no longer seek the cancellation of the Writ of Execution provided that any legal effect thereof on the judgment award shall be recognized and applied therein, and (2) the appropriate labor arbiter commence with the computation of the separation pay in lieu of reinstatement. On July 1, 2016, STI ESG received the Resolution of the NLRC, which denied the former employee's Motion for Reconsideration. On September 6, 2016, STI ESG received the Petition for Certiorari filed by the former employee to the Court of Appeals wherein she questioned the Decision dated February 29, 2016 and Resolution dated June 28, 2016 issued by the NLRC. In the Petition, the former employee reiterated all her grounds in the Motion for Reconsideration filed to the NLRC. On September 26, 2016, STI ESG filed its Comment/Opposition Ad Cautelam. In the said Comment/Opposition, STI ESG reiterated its arguments raised against the former employee's Motion for Reconsideration. In addition, STI ESG raised that (a) the issue on annulment of the Writ of Execution should be deemed moot because STI ESG has already manifested that it would no longer enforce said decision, and (b) the former employee should show proof that the Motion for Reconsideration was actually filed to the NLRC within the period allowed by law or otherwise, the Petition should be denied due to non-exhaustion of administrative remedies. Upon filing of extension to file Reply to the Comment/Opposition Ad Cautelam of STI ESG, the former employee filed her Reply thereto on October 19, 2016. On October 24, 2016, the Court of Appeals referred the case for mediation with the Philippine Mediation Center-Court of Appeals. Based on the relevant rules, the mediator assigned in the instant case has an extendible thirty (30) days to complete the mediation proceeding. Should the parties fail to settle the instant case, the case shall be referred to the Court of Appeals for resolution.

Both parties attended the mediation hearing wherein both parties provided their respective settlement amount wherein the former employee rejected the last proposal made by STI ESG. Considering that


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both parties failed to amicably settle, the mediation proceedings was terminated.

On April 11, 2017, STI ESG received the Court of Appeals’ Resolution which required both parties to file their respective Memoranda within a non-extendible period of fifteen (15) days from receipt thereof or until April 26, 2017. In compliance with the aforesaid Resolution the Parent Company filed its Memorandum on April 26, 2017. On June 6, 2017, STI ESG received the Court of Appeal’s Decision on the former employee’s Petition for Certiorari. In the Decision, the Court of Appeals determined that there is no need to resolve the issue on the nullification of the Partial Writ of Execution because both parties agreed that the funds garnished by virtue of said Writ to the former employee shall be considered as partial satisfaction of her judgment award.

The Court of Appeals likewise clarified that the issue on the former employee’s waiver of reinstatement pending appeal should have been resolved by the new labor arbiter, and not the NLRC. Contrary to the former employee’s assertion that the former labor arbiter resolved the said issue, the Court of Appeals took into consideration that the NLRC validly ordered the re-raffle of the case to a new labor arbiter who should resolve all pending incidents and issues. Without making any findings and/or rulings contrary to STI ESG’s claim that the former employee waived her reinstatement pending appeal on October 2006 and consequently invalidated her assertion that her backwages should be computed from May 2004 until present day, the Court of Appeals affirmed the re-raffle of the execution proceedings of the former employee’s judgment award to a new labor arbiter to make an independent determination of all pending incidents and issues. Considering the aforesaid Decision did not prejudice STI ESG’s position, STI ESG decided to refer all pending issues on the execution of the judgment award of the former employee, including the waiver of backwages pending appeal, to the new labor arbiter. To date, there is no notice that the case has already been referred to the new labor arbiter and/or filing of any Motion for Reconsideration by the former employee on the aforesaid Decision.

Kingslee Opulencia Dela Cruz vs. STI

Academic Center/ Monico V. Jacob/Jei Isip NLRC CASE NO. RAB IV 1-00080-16-L National Labor Relations Commission A former part-time full-load faculty member of STI College Calamba, a school owned by STI ESG, filed an illegal dismissal case against STI College Calamba after his contract was not renewed. Complainant's timekeeping records when he was still employed with STI College Calamba show that he was not using the biometrics when reporting for work, as reported by the security personnel thereof. In light thereof, complainant was issued a notice to explain his infraction, along with other different memos for some other transgressions. However, since his contract was about to end at the time, the school administration, instead, decided not to renew his contract for the following semester given his conduct during the semester. After complainant processed his clearance, he refused to receive his final pay, which reflected


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his actual attendance on record, on the ground that the amount of the check is not correct. There is no decision by the Labor Arbiter (LA) as of yet.

Esther K. Bobis vs. STI College-Cagayan de Oro and/or Mario U. Malferrari NLRC CASE NO. RAB 10-09-00747-2015 National Labor Relations Commission

Esther K. Bobis vs. STI College-Cagayan de Oro and Mario Malferrari, School Administrator NLRC-MAC-03-014355-2016 National Labor Relations Commission

A former IT Instructor who eventually became the IT Program Head of STI College Cagayan de Oro, a school owned by STI ESG, filed an illegal dismissal case against STI College Cagayan de Oro on the ground that she was constructively dismissed when upon returning from preventive suspension, she allegedly no longer had any work to go back to because the STI ESG-owned company purportedly removed her workplace from the school premises. For its part, STI ESG countered the complainant's claim that she was dismissed by presenting the complainant's one-liner resignation letter. The LA decided that there was neither an illegal dismissal nor resignation to speak of in this case, hence, the parties were ordered to return to status quo which meant reinstatement of complainant to her former position but without backwages, separation pay, or similar benefits. Nevertheless, STI was ordered to pay complainant the amount of ₱7,350 representing her unpaid salary for the period March 10-30, 2014 However, the NLRC overturned the LA's decision upon a dubious motion for partial reconsideration declaring complainant to have been illegally dismissed and ordering STI ESG not only to reinstate her but also to pay her full backwages computed from the time compensation was withheld up to the date of actual reinstatement. STI ESG moved to reconsider the NLRC's decision but to no avail. At present, a Petition for Certiorari questioning the decision of the NLRC is pending before the Court of Appeals. On May 12, 2017, STI ESG received a copy of a Motion for Execution with Prayer for Payment of Separation Pay in Lieu of Reinstatement filed by Complainant-Appellant seeking the issuance of a writ of execution for the implementation of the Resolution dated June 30, 2016 issued by the Honorable Eight Division, National Labor Relations Commission, Cagayan de Oro City. On May 22, 2017, STI ESG filed its Opposition to the Motion for Execution with Prayer for Payment of Separation Pay in Lieu of Reinstatement. Subsequently, a hearing on the motion for execution was set on June 5, 2017. In the said hearing, we reiterated that STI ESG is amenable to reinstating complainant but as a Part-time Full Load faculty member. Complainant countered that she is not interested in reinstatement but would rather be paid her backwages and separation pay. When we asked for how much is she willing to settle the matter amicably, she insisted that she be paid the total amount of her backwages and separation pay. When asked if we have any counter-offer on the payment of backwages and separation pay, we manifested that we already filed our opposition thereto and that there is still a need for the official computation of the same. At that point, the hearing officer showed us a computation of the backwages which amounted to ₱516,494.03. We then manifested that we will bring the matter to management. On the part of complainant, she manifested that she will file her reply to our opposition. The hearing officer then said that upon submission of said reply, the motion for execution is deemed submitted for resolution.


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Also, in the motion for execution, it was also alleged that the Court of Appeals already denied the Petition for Certiorari of STI ESG. However, STI ESG did not receive any copy of said resolution by the Court of Appeals. Upon inquiry with the Court of Appeals, it appeared that the copy of the resolution dismissing the petition for certiorari was returned to sender due to “RTS-UNKNOWN ADDRESS”. Apparently, the indicated address of counsel of record simply states Ortigas Ave., Extension, Cainta, Rizal. STI ESG then filed a manifestation with the Court of Appeals manifesting that we have yet to receive a copy of their minute resolution and clarifying that the complete address where a copy of the said resolution may be sent is “3rd Flr. STI Academic Center, Ortigas Avenue Extension, Cainta, Rizal 1900”. On June 2, 2017, STI ESG received a copy of the Minute Resolution dated January 12, 2017 dismissing its Petition for Certiorari based on the following grounds: a) failure to attach a copy of the Resolution dated June 30, 2017 of the NLRC; b) failure to attach the Secretary Certificate authorizing Mario Malferrari, Jr. as representative for STI ESG to file the petition for certiorari; c) failure to verify the petition; and d) failure to attach affidavit of service. STI ESG intends to file a Motion for Reconsideration of the said Minute Resolution of the Court of Appeals. STI ESG has 15 days from date of receipt to file its Motion for Reconsideration.

Analiza M. Agarpao vs. STI College and/or Eusebio Tanco, Christopher Maque and Dr. Dana Tebia NLRC CASE NO. NCR-02-02072-12 National Labor Relations Commission

Analiza M. Agarpao vs. STI College and Eusebio Tanco, et al. NLRC LAC N0.-11-003318-12 National Labor Relations Commission

STI College (Global City), Eusebio Tanco, et.al. vs. National Labor Relations Commission (NLRC) & Analiza M. Agarpao C.A. G.R. SP No.131754 Court of Appeals

The complainant was first hired as full-time contractual at STI College Global City from June 1, 2009 to October 31, 2009. Her employment was renewed from June 7, 2010 to October 31, 2010 as a contractual full-load faculty member and then as Program Head from April 1, 2011 to May 31, 2011. She was then hired as a faculty member on a Probationary Full – load status from June 1, 2011 to October 31, 2011. On February 3, 2012, Complainant filed a complaint against STI College Global City, a school owned by STI-ESG. Her causes of action are non-payment of wages, non-payment of 13th month pay and for not issuing her Certificate of Employment. On April 18, 2012, Complainant filed an Amended Complaint, adding in her causes of action the following: illegal dismissal – constructive, non-payment of overtime pay, SIL, ECOLA, moral and exemplary damages, attorney’s fees and included Christopher Maque and Dana Tebia as respondents. In its September 28, 2012 Decision, the LA found respondent school to have constructively dismissed complainant and ordered to pay her monetary awards amounting to ₱426, 166.66. On April 30, 2013, the NLRC sixth division affirmed the decision of the LA. On July 3, 2015, the Court of Appeals dismissed the


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Petition for Certiorari filed by respondent STI and affirmed the decision of the NLRC dated April 30, 2013 and June 18, 2013, respectively. The CA’s decision which was promulgated on July 3, 2015 has attained finality on October 16, 2015.

Luningning Z. Brazil, Salvacion L. Garcera, and Rita S. De Mesa vs. STI Education Services Group, Inc. and Monico V. Jacob NLRC RAB V CASE NO. 07-00153-11 National Labor Relations Commission

Luningning Z. Brazil, Salvacion L. Garcera, and Rita S. De Mesa vs. STI Education Services Group, Inc. and Monico V. Jacob NLRC LAC No. 03-001018-12 National Labor Relations Commission

Luningning Brazil, Salvacion L. Garcera, and Rita S. De Mesa vs. National Labor RelationCommission, STI Education Services GrouInc. and Monico V. Jacob CA-G.R. SP No. 134584 Court of Appeals

Former part-time faculty members of STI College Davao who were erroneously issued employment contracts for regular employees filed an illegal dismissal case against STI College Davao, a school owned by STI ESG, following their stubborn refusal to sign their respective job offers as required by CHED. The LA rendered a Decision finding the complainants as regular employees of STI ESG; declaring the Company as guilty of illegal dismissal; and ordering the Company to pay them separation pay of ₱220,913.40; ₱l76,730.73; ₱l47,175.60, respectively, plus backwages, moral and exemplary damages of ₱200,000.00 each, plus 10% attorney's fees. Upon appeal to the NLRC, the case filed by one of the faculty members was dropped, while the rest of the Decision was affirmed. Accordingly, a Motion for Reconsideration of the NLRC Decision was filed wherein it prayed for the dismissal of the complaints of Brazil and Garcera as well, invoking well-settled cases as jurisprudential authorities to persuade the NLRC to dismiss the cases against the Company. As it developed, STI ESG prevailed at the NLRC, and the complaint was dismissed. The former faculty members assailed said Decision of the NLRC at the Court of Appeals which denied the Petition. Both parties here may have been mistaken in believing that the former faculty members have become regular faculty members by their length of service and seemingly satisfactory performance. Because of such incorrect grant of regular employment status, STI ESG, for years, have paid to complainants the salaries and benefits ought to be received by regular faculty members, which they did not deserve considering their failure to meet the qualifications set out in the MORPS and MORPHE. To punish STI ESG for such act of giving Petitioners more than what they deserve would run contrary to the basic tenets of equity and justice. In fact, STI sought to remedy its mistake by formulating its two-year compliance consideration program, wherein affected teachers such as complainants shall continue to receive the same benefits they are currently enjoying, subject to the completion of their master's degree within a period of two (2) years. Even complainants admitted that their job offers stipulated a higher monthly salary. In spite of all these, complainants chose not to sign the said job offers.


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The former faculty members filed a motion for reconsideration of the said decision of the Court of Appeals. STI ESG filed its Comment on the motion for reconsideration emphasizing the following points: (1) that the instant motion for reconsideration is pro-forma and should be denied outright; and (2) that the petitioners failed to raise any substantial argument to warrant a modification of the Court’s decision considering that (a) the Court of Appeals did not err in finding that the NLRC did not commit grave abuse of discretion in dismissing petitioner’s complaint for illegal constructive dismissal; and (b) the Court of Appeals did not err in upholding the NLRC’s finding that petitioners were mere part-time teaching personnel of STI. Presently, the Court of Appeals have yet to rule on the motion for reconsideration filed by the former faculty members.

Tristan Jules P. Maningo representing STI Education Services Group, Inc. v. Cristian N. Monreal NPS Docket No. XV-16-INV14L01174 Office of the City Prosecutor, Taguig City ACP Vincent L. Villena

This is a criminal case for qualified theft filed against Mr. Cristian N. Monreal, the School Accounting Supervisor of STI Global City, a school owned by STI ESG, from November 5, 2012 until his resignation on February 28, 2014. Mr. Monreal also served as the Acting School Accountant of STI College Global City from January 2013 until his resignation. Mr. Monreal manipulated the payroll registers of STI College Global City by including Ms. Raissa Torrente - a former faculty member of STI College Global City - in the payroll registers and placing a corresponding salary and 13tl' month pay beside her name. The salary of Ms. Torrente was deposited in a Bank Account belonging to Mr. Monreal. The total amount deposited to the Bank Account of Mr. Monreal through this scheme amounted to Two Hundred One Thousand Forty-Seven Pesos and Sixty Three Centavos (₱201, 047.63). On December 10, 2014, the Complaint- Affidavit against Mr. Monreal was filed with Office of the City Prosecutor of Taguig City. The case was raffled to Assistant City Prosecutor Vincent L. Villena (ACP Villena). The summons served to Mr. Monreal was returned undelivered with remarks "no such person". STI ESG provided the Office of ACP Villena with additional addresses where summons may be served to Mr. Monreal. The Preliminary Investigation Conferences was scheduled on April 14, 2015 and April 21, 2015. Mr. Monreal did not appear on the Preliminary Investigation Conferences held on April 14, 2015 and April 21, 2015. After the April 21, 2015 Preliminary Investigation Conference, ACP Villena deemed the case submitted for resolution. On September 8, 2016, STI ESG filed an Ex-Parte Motion for Early Resolution to resolve the case pointing out that more than sixteen (16) months has elapsed since the matter was submitted for resolution.


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Engr. Jerry D. Barbacena vs. STI College – Ortigas Cainta Branch, Monico V. Jacob, et. al. NLRC CASE NO. RAB IV 09-01415-14-R National Labor Relations Commission

A former part-time full-load faculty member, whose contract was not renewed following the semester when an administrative complaint was decided against his favor, filed a case of illegal preventive suspension, constructive illegal dismissal, as well as illegal suspension. By way of background, complainant was charged with committing misdemeanors that constitute violation of STI Code of Conduct for allegedly using malicious, discriminating, disrespectful, indecent, offensive remarks against his students during class and for allegedly leaking examination to the students. By virtue of the complaints received by the school, he was preventively suspended due to the sensitive nature of his position and the seriousness of the charges against him. Complainant failed to attend the hearings set for the purpose, thus, the preventive suspension was extended. Instead of attending to the hearings, complainant filed the instant labor case. The LA rendered a Decision finding complainant to have been constructively dismissed by STI and ordering STI to pay him his separation pay with full backwages in the total amount of ₱327,375.00. Upon appeal to the NLRC, the LA’s decision was modified deleting the award for backwages and separation pay after the Commission accepted the proof of payment of complainant-appellee’s salary during his preventive suspension. Thus, NLRC ordered STI to pay only for the remaining salaries of complainant-appellee from 16 to 31 October 2014 in the mount of ₱8,653.80 covering his unexpired fixed term and his proportionate 13th month pay in the amount of ₱11,837.44. On August 3, 22016, the NLRC issued an Entry of Judgment for the said resolution. On January 4, 2017, STI received a Motion for Reconsideration filed by Engr. Barbacena alleging that he only received the NLRC Resolution on December 7, 2016 due to the failure of Air21 to locate his residence. STI filed an Opposition/Comment to counter the said Motion for Reconsideration. On May 9, 2017, STI received a copy of the Resolution dated April 24, 2017 of the Third Division, NLRC denying the Motion for Reconsideration filed by Engr. Barbacena for lack of merit.

Paz Rowena T. Del Rosario vs. STI Education Services Group Inc., Atty. Monico V. Jacob, et. al. NLRC CASE NO. RAB NCR-01-00943-16 National Labor Relations Commission Paz Rowena T. Del Rosario vs. STI Education Services Group Inc., Atty. Monico V. Jacob, et. al. NLRC LAC No. 09-002600-16 National Labor Relations Commission

This is a case for illegal dismissal (constructive), underpayment of salary/wages, non-payment of salary/wages, separation pay, moral and exemplary damages and attorney’s fees filed by a former school nurse of STI College Fairview Branch. Complainant was cited in several instances for her excessive tardiness, negligence, and other violations of the school’s Code of Conduct. On January 15, 2016, she submitted her resignation letter effective immediately and processed her clearance. On the same day, she proceeded to the NLRC and filed a request for assistance.


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Complainant claimed that she was forced to resign when her benefits were reduced, she was deliberately given difficult work assignments, she was cited for several violations of the company’s code of conduct to build-up a case against her and was given poor working conditions. The labor arbiter dismissed her complaint for lack of merit saying that resignation due to the enforcement of disciplinary measures for violations does not constitute unbearable working condition, hence, her resignation does not constitute constructive dismissal. She appealed the decision of the labor arbiter to the NLRC. On April 21, 2017, STI College Fairview received the Decision dated March 31, 2017 of the 4th Division, NLRC, denying her appeal and affirming the labor arbiter’s decision but with modification by awarding ₱75,000.00 as financial assistance based on the higher interest of equity, social and compassionate justice. On May 2, 2017, STI ESG filed its Motion for Partial Reconsideration of the decision of the NLRC, particularly, on the award of financial assistance in the amount of ₱75,000.00 on the basis that she is not entitled to any financial assistance since there was no dismissal to speak of. Moreover, her failure to comply with the 30-day notice requirement in case of resignation makes her even liable for damages instead of financial assistance. However, on June 1, 2017, STI ESG received a copy of the resolution dated May 30, 2017 of the 4th Division, NLRC denying the motion for reconsideration. STI ESG intends to file a petition for certiorari with the Court of Appeals to appeal the decision of the 4th Division, NLRC awarding financial assistance in the amount of ₱75,000.00.

Belinda Torres and Jocelyn Tumambing v. STI College Davao and Peter K. Fernandez NLRC Case No. RAB-XI-07-00748-09 NLRC MAC No. 04-011330-2010 CA-G.R. SP No. No. 04176-MIN G.R. No. 218368

The case stemmed from a Complaint for illegal dismissal filed by Belinda Torres (Ms. Torres) and Jocelyn Tumambing (Ms. Tumambing). They were formerly the Chief Executive Officer (CEO) and Chief Operating Officer (COO), respectively, of STI Davao, respectively, until they were separated from service effective 23 June 2009. On 03 September 2009, STI Davao filed a Motion to Dismiss before the Labor Arbiter and prayed for the dismissal of the Complaint for illegal dismissal on the ground that the Labor Arbiter and the NLRC have no jurisdiction over the case. STI Davao argued that Ms. Torres and Ms. Tumambing are not mere employees, but are rather corporate officers, of STI Davao. As such, the controversy involving their removal involves an intra-corporate dispute which falls within the jurisdiction of the regular courts. On 16 December 2009, the Labor Arbiter issued an Order which granted the Motion to Dismiss filed by STI Davao. The Labor Arbiter ruled that Ms. Torres and Ms. Tumambing are corporate officers, and are not mere employees, of STI Davao.


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Not satisfied with the ruling of the Labor Arbiter, Ms. Torres and Ms. Tumambing filed an Appeal before the NLRC. On 30 September 2010, the NLRC issued a Resolution affirming the Labor Arbiter’s Order dated 16 December 2009 finding that Ms. Torres and Ms. Tumambing are corporate officers whose removal from office is not within the ambit of the jurisdiction of the NLRC. While they subsequently filed a Motion for Reconsideration, such motion was denied by the NLRC. Ms. Torres and Ms. Tumambing then elevated the case to the Court of Appeals via a Petition for Certiorari. On 14 February 2014, the Court of Appeals rendered a Decision annulling the assailed Resolutions of the NLRC and found that Ms. Torres and Ms. Tumambing are not corporate officers, but are rather mere employees, of STI Davao. The case was thus ordered to be remanded to the Labor Arbiter for reception of evidence. While STI Davao filed a Motion for Reconsideration, such motion was denied by the Court of Appeals. STI Davao eventually elevated the case to the Supreme Court via a Petition for Review on Certiorari. Unfortunately, through a Resolution dated 19 August 2015, the Supreme Court denied the Petition. STI Davao’s Motion for Reconsideration was likewise denied by the Supreme Court.

STI Education Services Group Inc. vs. Mobeelity Innovations, Inc.

STI ESG engaged the services of MOBEELITY to deploy its digital classroom pilot, and MOBEELITY committed to provide the necessary applications suite of the intended digital classroom learning management system of STI ESG. MOBEELITY provided STI ESG with a master admin account that granted access to the EDU 2.0 LMS (now known as NEO) and iMEET virtual classroom. EDU 2.0 LMS and iMEET virtual classroom are products of Cypher Learning, and MOBEELITY was an authorized reseller of these products. MOBEELITY undertook to provide STI ESG with online and on-site technical support for the implementation of the EDU 2.0 LMS and iMEET virtual classroom. Furthermore, MOBEELITY undertook to provide STI ESG with all updates and modifications to EDU 2.0 LMS and iMEET virtual classroom free of charge. In accordance with the terms of the Agreement, STI ESG paid MOBEELITY the sum of Three Million Three Hundred Thousand Pesos (₱3,300,000.00) as downpayment for services to be rendered by MOBEELITY for the First Semester of School Year 2016 to 2017. On June 12, 2016, it came to the attention of STI ESG that Cypher Learning had terminated its relationship with MOBEELITY due to the fraudulent acts committed by MOBEELITY against Cypher Learning. As a result of the termination of its relationship with Cypher Learning, MOBEELITY would no longer be able to grant access to the EDU 2.0 LMS and iMEET virtual classroom in favor of STI ESG for the First Semester of School Year 2016-2017. MOBEELITY would also no longer be able to comply with its other obligations under the Agreement such as its obligation to provide STI ESG with all updates and modifications to EDU 2.0 LMS and iMEET virtual classroom. Considering the above circumstances, it is only proper for MOBEELITY to reimburse the Three Million Three Hundred Thousand Pesos (₱3,300,000.00) paid by STI ESG. This amount represents the downpayment for services to be rendered by MOBEELITY for the First Semester of School Year 2016-2017, which it can no longer render because of the termination of its relationship with Cypher Learning.


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Despite STI ESG’s demand for MOBEELITY to reimburse the Three Million Three Hundred Thousand Pesos (₱3,300,000.00) downpayment made for services to be rendered by MOBEELITY for the First Semester of School Year 2016 to 2017 and efforts to amicably settle this concern, MOBEELITY refuses to return the downpayment made by STI ESG. On February 21, 2017, STI ESG sent a demand for arbitration in accordance with the arbitration clause in the Memorandum of Agreement. MOBEELITY did not respond to the demand for arbitration. STI ESG will then file a Petition with the Regional Trial Court to compel MOBEELITY to go to arbitration. It will be the arbitration panel that will decide on the merits of STI ESG’s claim for refund and damages against MOBEELITY.

Gan Tiak Kheng and Kelvin Y. Gan vs. STI College Cebu, Inc. and Amiel C. Sangalang Civil Case No. 15-135138 Branch 6, Regional Trial Court City of Manila

STI College Cebu, Inc. (STI Cebu) was named defendant in a case filed by certain individuals for specific performance and damages. In their Complaint, the Plaintiffs sought the execution of Deed of Absolute Sale over a parcel of land situated in Cebu City on the bases of an alleged perfected contract to sell. On March 15, 2016, STI ESG, as the surviving corporation in the merger between STI ESG and STI Cebu, filed a Motion to Dismiss. On March 31, 2016, STI ESG received the Plaintiffs' Comment/Opposition to Motion to Dismiss with Motion to Declare Defendant in Default (Motion). On April 8, the Court required STI ESG and the Plaintiffs to file their respective Position Papers to the Motion to Dismiss and the Plaintiffs' Motion until April 13, 2016. On April 12, 2016, STI ESG received the Plaintiffs' Position Paper. STI ESG, on April 13, 2016, filed its Position Paper. On April 14, 2016, STI ESG filed a Manifestation with an attached Position Paper. On August 2, 2016, STI ESG received the Plaintiffs' Motion to Resolve, which seeks for the resolution of all pending incidents. On August 11, 2016, STI ESG filed a Comment dated August 10, 2016 to the Plaintiffs' Motion to Resolve. In the Comment, STI ESG also moved for the resolution of all pending incidents including the Motion to Dismiss filed by STI ESG, and reiterated the propriety of the dismissal of the instant case. On August 12, 2016, the hearing on the Motion to Resolve proceeded wherein STI ESG reiterated its Motion(s) to Dismiss, and moved for the resolution of all pending incidents in the instant case. The Trial Court then ordered that all of the pending incidents shall be resolved. On February 28, 2017, the Defendants received the Resolution of the Trial Court wherein it denied the Defendants’ Motion to Dismiss. On March 6, 2017 the Defendants filed their Joint Motion for Reconsideration Ad Cautelam in relation to the Resolution.

On March 14, 2017, the Defendants received the Plaintiffs’ Comment/Opposition to Joint Motion Reconsideration Ad Cautelam and/or Motion to Declare Defendants in Default dated 11 March 2017 (Comment with Motion). In the Comment with Motion, Plaintiffs alleged that the Defendants should


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have filed their Answer instead of the Joint Motion for Reconsideration Ad Cautelam after the denial of their Motions to Dismiss. Considering that the Defendants did not file their Answer, Plaintiffs moved to declare the Defendants in default.

On March 17, 2017, the Defendants filed and served in open court their Reply and/or Comment/Opposition Ad Cautelam (Reply) to the Plaintiffs’ Comment with Motion. In the Reply, the Defendants asserted that under the relevant provisions of the Rules of Court and jurisprudence, a motion for reconsideration is allowed to be filed after the denial of a motion to dismiss. Consequently, the filing of the Answer is deemed suspended while the Joint Motion for Reconsideration Ad Cautelam is pending for resolution.

Upon receipt of the Plaintiffs’ Reply on April 3, 2017, the Defendants filed the Joint Rejoinder wherein they asserted that the Reply is a reiteration of the Plaintiffs’ baseless argument that a motion for reconsideration is prohibited.

With the filing of the aforesaid pleadings, the Joint Motion and Plaintiffs’ Motion to Declare Defendants in Default are submitted for resolution.

Global Academy of Technology and

Entrepreneurship, Inc. (formerly STI-College-Santiago, Inc.) vs. STI Education Services Group, Inc. Civil Case No. 16-02676 Branch 58, Regional Trial Court Makati City

Global Academy of Technology and Entrepreneurship, Inc. (GATE) filed a complaint for Damages against STI ESG for its non-renewal of the Licensing Agreement despite the former’s alleged compliance of the latter’s audit recommendations. On the basis of such alleged invalid non-renewal of the Licensing Agreement, GATE seeks for (a) moral damages in the amount of P500,000.00, (b) exemplary damages in the amount of P500,000.00 and (c) attorney’s fees in the amount of 15% of the amount to be awarded and P3,000.00 per court appearance. On January 23, 2017, STI ESG filed its Motion to Dismiss Ad Cautelam. In the said Motion, STI ESG asserted that the dismissal of the case was warranted on the following grounds; (a) lack of jurisdiction over STI ESG due to improper service of Summons to a Human Relations Officer (HR Officer), and (b) failure to state a cause of action because GATE has no right for the renewal of the Licensing Agreement when (i) the same already expired and (ii) it clearly provides that it may be renewed by mutual agreement of the parties. The Motion to Dismiss Ad Cautelam was set for hearing on February 3, 2017. On February 3, 2017, STI ESG received GATE’s Comment /Opposition. In the said Comment/Opposition, GATE alleged that (a) the HR Officer was alleged authorized by its in house counsel to receive the Summons, and (b) the decision of STI ESG not to renew the Licensing Agreement was not based on its mutual agreement provision but the violations of GATE. Consequently, such decision of STI ESG to cancel the Licensing Agreement was alleged in bad faith. Upon the filing of all the pleadings in relation to the Motion to Dismiss Ad Cautelam of STI ESG, the Trial Court issued its Resolution dated May 16, 2017, which denied the said Motion. The Trial Court also required STI ESG to file its Answer to the Complaint within the non-extendible fifteen (15) days from receipt of said Resolution on May 25, 2017 or until June 9, 2017.


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On June 9, 2017, STI ESG filed its Answer to the Complaint. In the Answer, STI ESG reiterated its position that GATE has no cause of action against it because its decision not to renew the Licensing Agreement is in accordance with contractual stipulations therein that its renewal is upon mutual agreement of both parties. Considering the effectivity period of the Licensing Agreement expired on March 31, 2016 without being renewed by both parties, GATE cannot claim any damages for STI ESG’s lawful exercise of its rights under the Licensing Agreement.

On June 19, 2017, the Trial Court issued its Order referring the parties to Court-Annexed Mediation on July 14, 2017.

Both parties are required to participate in the said mediation hearing. Should the parties fail to amicably settle the instant case, the case shall undergo Judicial Dispute Resolution before the Trial Court as part of the pre-trial proceedings.

Commissioner of Internal Revenue vs. STI Education Services Group, Inc. CTA Case No. 7984 Court of Tax Appeals - 2nd Division

Commissioner of Internal Revenue vs. STI Education Services Group, Inc. CTA EB No. 1050 Court of Tax Appeals - En Banc

Commissioner of Internal Revenue vs. STI Education Services Group, Inc. G.R. No. 220835 Supreme Court - First Division

STI ESG filed a petition for review with the Court of Tax Appeals (CTA) on October 12, 2009. This is to contest the Final Decision on Disputed Assessment issued by the BIR assessing STI ESG for deficiencies on income tax, and expanded withholding tax for the year ended March 31, 2003 amounting to ₱124.3 million. On February 20, 2012, STI ESG rested its case and its evidence has been admitted into the records. On June 27, 2012, the BIR rested its case and has formally offered its evidence. On April 17, 2013, the CTA issued a Decision which granted STI ESG's petition for review and ordered the cancellation of the BIR's assessment since its right to issue an assessment for the alleged deficiency taxes had already prescribed. On May 16, 2013, STI ESG received a copy of the Commissioner of Internal Revenue's (CIR) Motion for Reconsideration dated May 8, 2013. STI ESG filed its Comment to CIR's Motion for Reconsideration on June 13, 2013. The CTA issued a resolution dated July 17, 2013 denying the CIR's Motion for Reconsideration. On August 22, 2013, the CIR filed its Petition for Review dated August 16, 2013, with the CTA En Banc. On October 29, 2013, STI ESG filed its Comment to the CIR's Petition for Review. The CTA En Banc deemed the case submitted for decision on May 19, 2014, considering the CIR's failure to file its memorandum. On March 24, 2015, the CTA En Banc affirmed the decision dated April 17, 2013 and the resolution dated July 17, 2013 and granted STI ESG's Petition for Review and ordered the cancellation of the BIR assessment for the fiscal year ending March 31, 2003. On April 21, 2015, the CIR filed a Motion for Reconsideration with the CTA En Banc. On July 3, 2015, STI ESG filed its Comment on the Motion for Reconsideration. On September 2, 2015, the CTA En Banc denied the CIR's Motion for Reconsideration. On October 30, 2015, the CIR filed a Petition for Review with the Supreme Court. On January 26, 2016, STI ESG received a notice from the Supreme Court requiring it to file its Comment on the Petition for Review filed by the CIR. On February 5, 2016, STI ESG filed a Motion for Extension of


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Time to File Comment on the Petition for Review requesting an additional period of twenty (20) days from February 5, 2016, or until February 25, 2016, within which to file the Comment. On February 25, 2016, STI ESG filed another Motion for Extension of Time to File Comment on the Petition for Review requesting an additional period of fifteen (15) days from February 25, 2016, or until March 11, 2016, within which to file the Comment. On March 11, 2016, STI ESG, through its counsel, filed its Comment on the Petition. On October 27, 2016, STI ESG received a notice from the Supreme Court in which the Court, inter alia, required the CIR to reply to STI ESG's Comment (to the Petition for Review) within 10 days from receipt of notice. On November 25, 2016, the CIR filed its reply to STI ESG’s Comment. As of the date of this report, the case is pending resolution by the Supreme Court.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Except for matters taken up during the annual meeting of stockholders held on September 9, 2016, there was no other matter submitted to a vote of security holders during the period covered by this report.

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. MARKET FOR ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Price and Dividends of Registrant’s Common Equity and Related Stockholder Matters (1) Market Information The Company has a total Authorized Capital Stock (ACS) of Five Billion Pesos (₱5,000,000,000.00) divided into five billion (5,000,000,000) shares with a par value of One Peso (₱1.00) each. Out of the ACS, three billion eight-one million eight hundred seventy-one thousand eight hundred fifty-nine (3,081,871,859) shares have been subscribed and paid-up. The common shares of the Company are not traded in any market, nor are they subject to outstanding warrants to purchase, or securities convertible into common shares of the Company. (2) Holders Foreign ownership limit for STI ESG is forty percent (40%) of the issued and outstanding common shares, equivalent to 1,232,748,744 common shares. Total shares owned by foreign shareholders as of March 31, 2017 was 7,841,118, equivalent to 0.25% of the outstanding common shares of the Company. As of March 31, 2017, there were fifty six (56) shareholders of the Company’s outstanding capital stock. The Company has common shares only.


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The following table sets forth the top 20 shareholders of the Company’s common stock, the number of shares held, and the percentage of total shares outstanding held by each as of March 31, 2017.

(3) Dividend Policy The Company’s Board is authorized to declare dividends. A cash dividend declaration does not require any further approval from the Company’s shareholders. A stock dividend declaration requires the further approval of shareholders representing not less than two-thirds of the Company’s outstanding capital stock. It is the policy of the Company to declare dividends whenever there are unrestricted retained earnings available. Such declaration will take into consideration factors such as restrictions that may be imposed by current and prospective financial covenants; projected levels of operating results, working capital

Name No of Shares Owned % Ownership

1 STI HOLDINGS 3,040,623,037 98.66

2 PRUDENT RESOURCES, INC. 13,076,321 0.42

3 GONZALES, FRANCISCO B. JR. 8,873,692 0.29

4 ROSSI, PURIFICACION G. 7,841,118 0.25

5 PRUDENCIO, TOMAS J. 3,732,400 0.12

6 SANTOS, MARIA LOURDES 1,725,000 0.06

7 YOUNG, CAROLINA 1,651,828 0.05

8 RAMOS, DULCE 1,155,447 0.04

9 BUSTOS, FELIXBERTO 792,283 0.03

10 JAYME, CESAR M. JR. 305,954 0.01

11 DOMINGO, EMERITA R. 303,466 0.01

12 VALERIO, MIKAEL M.S. 241,279 0.01

13 ZARASPE, ANACLETA C. 214,038 0.01

14 MONES, REYNALDO A. 201,901 0.01

15 HEIRS OF EDGAR SARTE 148,622 0.00

16 RELLEVE, ALVIN K. 137,338 0.00

17 PUBLICO, EDGARDO 122,080 0.00

18 DUJUA, JOCELYN 115,532 0.00

19 GARCIA, NOEL B. 83,190 0.00

20 MADRIGAL, VICTORIA P. 63,384 0.00


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needs and long-term capital expenditures; and regulatory requirements on dividend payments, among others. Dividend History:

On 4 September 2014, STI ESG’s BOD approved the cash dividend declaration amounting to ₱250.0 million, or ₱0.08 per share, in favor of the stockholders of record as at 31 August 2014. Such dividends were paid on 22 September 2014. On September 4, 2015, STI ESG’s BOD approved the cash dividends declaration amounting to ₱250.0 million, or ₱0.08 per share, in favor of the stockholders of record as at 31 August 2015. Such dividends were paid on September 16, 2015. On September 9, 2016, STI ESG’s BOD approved the cash dividends declaration amounting to ₱246.5 million, or ₱0.08 per share, in favor of the stockholders of record as at September 9, 2016. Such dividends were paid on September 15, 2016. On September 20, 2016, STI ESG’s BOD also approved the cash dividends declaration amounting to ₱832.1 million, or ₱0.27 per share, in favor of stockholders of record as at September 20, 2016. The Company paid P431.5 million and P400.6 million dividends to its stockholders on September 23, 2016 and November 3, 2016, respectively. (4) Recent Sales of Unregistered or Exempt Securities There is no sale of unregistered or exempt securities for the past three (3) years.

Item 6. MANAGEMENT’S DISCUSSION AND ANALYSIS

This discussion summarizes the significant factors affecting the financial condition and operating results of STI Education Services Group, Inc. (STI ESG or the Parent Company) and its subsidiaries (hereafter collectively referred to as the “Group”) for the fiscal years ended March 31, 2017 and 2016. The following discussion should be read in conjunction with the attached audited consolidated financial statements of the Group as of and for the year ended March 31, 2017 and for all the other periods presented.

Financial Condition

March 31, 2017 vs. 2016

The Group’s total assets as at March 31, 2017 increased by ₱2,805.8 million to ₱11,316.0 million from last year’s ₱8,510.2 million. This is mainly due to the increase in cash and cash equivalents by ₱2,338.1

Declaration Date Dividends per Share Amount

September 20, 2016 PhP0.27 PhP832.1 mill ion





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million from the ₱3 Billion Fixed rate bond issuance which was partially offset by the loan payments for the period. Property and equipment likewise increased with the acquisition of EDSA, Pasay City properties, which will be the site of STI Academic Center Pasay-EDSA.

Cash and cash equivalents stood at ₱2,880.3 million as at March 31, 2017 or 431% higher than last year’s ₱542.2 million. The increase was contributed largely by the proceeds from the retail bond offering in March 2017 and partly by cash generated from operations.

Receivables, which consist mainly of receivables from students, increased by P96.8 million or 38%. The balance is composed mostly of amounts expected to be collected as payment for tuition and other school fees from students and from DepEd. The increase is largely attributed to receivables from DepEd amounting to ₱50.0 million as at March 31, 2017, of which ₱38.9 million have been collected as of report date. Students who qualified for the DepEd Voucher Program are entitled to the government subsidy in amounts ranging from ₱8,750 to ₱22,500 per student per year. Under the Voucher Program, DepEd pays directly the schools where these students enrolled. Inventories increased by 223% or ₱80.8 million as the schools increased their stock of uniforms and textbooks for Senior High School (SHS) students in preparation for the enrollment in the coming school year (SY).

Prepaid expenses increased by ₱23.0 million or 26% net of the input VAT which were applied to pay for the output VAT, substantially on the rent collected during the year. This is mainly due to the input value-added tax (VAT) recognized from the acquisition of EDSA, Pasay City properties, which will be the site of STI Academic Center Pasay-EDSA.

Property and equipment rose by ₱620.0 million, net of depreciation expense for the period amounting to ₱281.5 million, with the acquisition of EDSA, Pasay City properties for ₱552.4 million. This is also partly attributed to the related costs of construction of the school building, purchases of furniture, fixture and equipment for STI College Las Piñas which was completed in July 2016.

Investment properties declined by ₱28.6 million representing depreciation expense recognized for the period.

Investments in and advances to associates and joint ventures decreased by 18% as an associate registered declines in profit and in the market value of its investment in equities. The increase in the market value of the service assets of an associate softened the decline in profit. Inter-company receivables are generally settled in cash.

Deferred tax assets (DTA) decreased by ₱7.3 million primarily because of the effect of derecognition of a subsidiary, iACADEMY, which was acquired by STI Education Holdings, Inc. (STI Holdings), STI ESG’s Parent Company, in September 2016 and because of the deferred tax liability (DTL) on the remeasurement gains recognized as period adjustments based on the valuation report prepared by an independent actuary. The DTA was presented net of the DTL. Pension assets amounting to ₱2.8 million is recognized resulting from remeasurement gains from improved valuation of the equity shares in the plan assets for the period.

Goodwill, intangible and other noncurrent assets slightly increased by ₱20.6 million or 6%.

Accounts payable and other current liabilities is slightly lower by 2% versus same period last year. STI ESG availed of short term loans during the year amounting to ₱1,793.0 million with interest rates ranging from 3.25%-3.75%. Total payments within the year amount to ₱1,248.0 million leaving a short-


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term loan balance of ₱545.0 million as at March 31, 2017. The loan proceeds were used to finance the acquisition of the three parcels of land in EDSA, Pasay City and for working capital requirements. Current and non-current portions of interest-bearing loans and borrowings declined by ₱60.0 million and ₱40.8 million, respectively, as principal payments were made during the period. Payments were also made for finance lease obligations, bringing down the balance payable by ₱0.82 million and ₱0.84 million for current and non-current portions, respectively. Unearned tuition and other school fees decreased by ₱23.6 million from ₱53.2 million as at March 31, 2016 to ₱29.6 million as at March 31, 2017. Previous year balance is higher because it includes the advance payments received by iACADEMY (see Note 19). STI ESG listed its ₱3 Billion Series 7-year Bonds due 2024 and Series 10-year Bonds due 2027 on the PDEx secondary market on March 23, 2017. The Bonds carry coupon rates of 5.8085% and 6.3756% for the 7-year and 10-year tenors, respectively. Interest payments are payable quarterly in arrears on June 23, September 23, December 23, and March 23 or the next business day if such dates fall on a non-banking day, of each year commencing on June 23, 2017, until and including the relevant maturity dates. The Bonds Payable is carried in the books at ₱2,947 million, net of deferred finance charges, representing the bond issue costs with carrying value of ₱53.0 million as at March 31, 2017. Other noncurrent liabilities increased by ₱84.8 million as advanced rent and rental deposits were received by STI ESG on its investment properties. In addition, accounts payable to STI Diamond with present value of ₱57.1 million, net of current portion of ₱3.7 million, was recognized in conveyance of its net assets to STI Novaliches in August 2016. Income tax payable rose by ₱3.7 million reflecting the increase in the Group’s taxable income. Pension liabilities decreased by 84% to ₱6.1 million as of March 31, 2017 due to impact of remeasurement unrealized gains recognized based on actuarial reports. Unrealized mark-to-market loss on the Group’s available-for-sale financial assets improved with the recognition of ₱0.8 million unrealized mark to market gain for the year substantially due to the higher market value of the Manulife shares held by STI ESG. On the other hand, the Group’s share in associates' unrealized mark-to-market loss on available-for-sale financial assets is ₱49.4 million as at March 31, 2017 from an unrealized mark to market gain of ₱122.6 million of the same period last year, as the market values of certain equity shares declined as of the financial statements reporting date. The equity conversion of STI ESG’s advances of ₱49.0 million to STI Taft, which resulted in the dilution of non-controlling interests, gave rise to additional ₱11.3 million on the equity reserve account. Further, an additional ₱10.8 million was charged to the other equity reserve account as a result of the sale of iACADEMY to STI Holdings. The Group recognized its share in associates’ equity reserve amounting to ₱0.7 million as at March 31, 2017. This arose when Maestro Holdings Inc., an associate of STI ESG, invested additional capital in Philippine Life Financial Assurance Corporation, thus diluting its non-controlling interest.


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As at March 31, 2017, the Group’s Cumulative actuarial gain increased by ₱28.0 million due to the impact of remeasurement unrealized gains recognized from improved market value of the investment in equity securities of the pension plan assets. Similarly, the Group’s share in associates’ Cumulative actuarial gain as at March 31, 2017 is ₱0.7 million from a share in associates’ Cumulative actuarial loss of ₱18.2 million as at March 31, 2016, resulting from remeasurement unrealized gains recognized based on associates’ actuarial reports for the year. Retained earnings decreased by 13% or ₱477.1 million after declaration and payment of the dividends, net of the income earned for the period. March 31, 2016 vs. 2015

STI ESG’s total assets as at March 31, 2016 slightly decreased by ₱215.4 million to ₱8,510.2 million from ₱8,725.6 million as at March 31, 2015. This was mainly due to the effect of the decrease in Investment in associates and joint ventures amounting to ₱188.6 million and the reduction in Cash balance of ₱87.5 million.

Cash and cash equivalents decreased by 14% from ₱629.7 million to ₱542.2 million as at March 31, 2016 and March 31, 2015, respectively, substantially due to the payment of the Current portion of long term loans amounting to ₱216.0 million and dividends paid by STI ESG in September 2015 amounting to ₱250.0 million.

Receivables, which consist mainly of receivables from students, increased by ₱18.5 million or 8%. This was lower than the 19% increase in revenues from tuition and other school fees indicating improvement in collection from students.

Inventories increased by 15% or ₱4.8 million as the schools increased their stock of uniforms in preparation for the enrollment in the coming SY 2015-2016. Procurement of marketing, educational and proware materials were also ramped up primarily for STI ESG’s SHS program.

Prepaid expenses decreased slightly by 2% mainly due to decrease in input value-added tax (VAT), as the input VAT related to the acquisition of condominium units by STI ESG in exchange for its land was applied to pay for the output VAT on the rent collected during the year 2015-2016 for the lease of the said condominium units.

Property and equipment rose by ₱14.0 million net of depreciation expense for the period amounting to ₱286.6 million, as construction of the school building in STI College Las Piñas reached the half-way mark and construction activities in other campuses were completed. The additional classrooms in STI College Novaliches, STI College Caloocan and STI College Ortigas-Cainta were completed, as well as the gymnasium and warehouse in STI College Ortigas-Cainta. School equipment and furniture were also acquired for said schools.

Investment properties slightly decreased by 3% mainly due to depreciation.

Investments in and advances to associates and joint ventures decreased by 9% as an associate registered declines in the market value of its investment in equities. Inter-company receivables are generally settled in cash.

Deferred tax assets increased by ₱7.6 million mainly due to taxes paid on tuition and other school fees and rental income collected in advance. Following statutory regulations, income received or collected in advance are taxable in the same year said income was actually received. Unearned revenues include payments received from SHS students who registered for the SY 2016-2017.


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Goodwill, intangible and other noncurrent assets rose by ₱40.1 million or 13% mainly due to the down payment made to a contractor for the STI Las Piñas campus construction project.

Accounts payable and other current liabilities declined by 33% or ₱191.5 million substantially due to payment to suppliers for completed expansion projects. Inter-company payables are generally settled in cash.

Current and non-current portions of interest-bearing loans and borrowings declined by ₱115.2 million and ₱100.8 million, respectively, as principal payments were made during the period.

Payments were also made for finance lease obligations, bringing down the payable balance by ₱1.8 million and ₱3.3 million for current and non-current portions, respectively.

Unearned tuition and other school fees increased by ₱32.6 million from ₱20.6 million as at March 31, 2015 to ₱53.2 million as at March 31, 2016. The increase is substantially due to the registration fees received from SHS students for SY 2016-2017.

Other noncurrent liabilities of ₱31.4 million pertain to advance rent and security deposits paid by lessees of STI ESG’s condominium units which were acquired in exchange for its land.

Income tax payable rose by ₱7.5 million reflecting the increase in STI ESG’s taxable income.

Pension liabilities increased by 39% to ₱38.1 million as of March 31, 2016 due to recognition of additional retirement obligations.

Unrealized mark-to-market losses on available-for-sale financial assets increased from ₱0.5 million as at March 31, 2015 to ₱0.9 million as at March 31, 2016, as market values of shares held declined.

STI ESG’s share in its associates' unrealized mark-to-market gains on available-for-sale financial assets decreased by 71% as the market values of certain equity shares declined as at March 31, 2016.

Cumulative actuarial gain decreased by ₱6.3 million as adjustments were made on actuarial valuations based on experience.

Retained earnings increased by 14% or ₱421.0 million as a result of this year’s net income earned less dividends declared.

Results of Operations

Years ended March 31, 2017 vs. 2016

STI ESG’s gross revenues expanded further by 11% to ₱2,603.2 million in 2017. This was primarily driven by the remarkable increase in the total number of students of the Group, with the entry of SHS from 77,645 last year to 96,279 students this year or an increase of 24%.

The student enrollment of the schools under STI ESG are as follows:

SY 2016-2017 SY 2015-2016

Enrollees Percentage

STI Network

Owned schools 52,687 42,878 9,809 23%

Franchised schools 43,592 34,767 8,825 25%

Total Enrollees 96,279 77,645 18,634 24%

Increase (Decrease)


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Grouping the students in terms of government regulatory agencies supervising the programs, wherein CHED pertains to students enrolled in tertiary and post-graduate programs, Technical Education and Skills Development Authority (TESDA) students are those enrolled in technical-vocational programs while DepEd pertains to SHS, following are the numbers:

Tuition and other school fees increased by ₱163.5 million or 8%. While there was a remarkable increase in the total number of students of the Group, the related increase in revenues is lower. The revenue per student from a CHED enrollee is higher than the revenue per student from a DepEd enrollee. With the start of the K to 12 program for Grade 11 students, the number of CHED freshmen enrollees of the Group declined. This was outweighed by the significant increase in SHS enrollees, which brought an increase in the entire student population by 18,634.

Revenues from educational services and royalty fees increased by ₱14.9 million and by ₱3.2 million, respectively, mainly due to the increased collections of the franchised schools. Revenues from educational services are derived as a percentage of the tuition and other school fees collected by the franchised schools from their students.

Sale of educational materials and supplies increased by more than double, largely due to increased sale of SHS uniforms and textbooks.

Other income decreased by 21% or ₱5.2 million substantially due to the ₱3.7 million receivables which were already written off and were subsequently collected by iACADEMY last year.

Cost of educational services slightly increased by 5% or ₱30.3 million from ₱654.8 million last year to ₱685.1 million mainly due to higher expenses directly associated with the increased number of students.

Cost of educational materials and supplies sold increased by ₱63.9 million concomitant with the increase in sale of uniforms and textbooks.

The Group posted lower General and administrative expenses from ₱977.4 million last year to ₱928.6 million this year. The highest decline was registered by advertising and promotions costs at ₱47.7 million decrease year-on-year. Most of the marketing activities for SHS were done in the months of October to November 2015 during the DepEd-mandated early registration period for SHS, unlike previously when such marketing costs were incurred April-May for tertiary.

Rental income increased by ₱39.2 million or 63% due to the substantial occupancy of the investment properties owned by STI ESG.

CHED 53,016 55% 66,445 86%

TESDA 5,692 6% 9,623 12%

DEPED 37,571 39% 1,577 2%

TOTAL 96,279 100% 77,645 100%

SY 2016-2017 SY 2015-2016% %


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Equity in net earnings of associates and joint ventures decreased by ₱212.8 million because of lower profits posted by an associate and the recognition of the impairment of certain investments in equities of an associate.

Interest expenses increased by ₱15.3 million due to short-term borrowings incurred for the acquisition of the EDSA, Pasay City properties and other short term loans availed for general corporate requirements.

STI Diamond and STI Novaliches executed in August 2016, a deed of assignment transferring the net assets of the former to the latter for a transfer price of ₱75.65 million payable in five (5) years. As a result, the management contract between STI ESG and STI Diamond was terminated and residual interest has been transferred. With this, STI Diamond was derecognized as a subsidiary of STI ESG for an amount equal to the present value of the related transfer price of ₱60.8 million.

Interest income slightly decreased by ₱1.8 million while dividend income slightly increased by ₱0.4 million.

Provision for income tax increased by ₱26.6 million as a result of the increase in taxable income from last year’s level.

Fair values of the Group’s investment in available-for-sale financial assets increased by ₱1.2 million from unrealized loss of ₱0.3 million last year to unrealized gain of ₱0.85 million this year due to favorable market conditions.

The Group on the other hand recognized its’ share in associates’ unrealized mark-to-market loss on available-for-sale financial assets of ₱171.9 million, lower by ₱130.2 million from last year’s ₱302.1 million, as an associate recognized lower fair value losses on its investment in equities.

The Group’s share in associates’ remeasurement gain (loss) on pension liability improved by ₱18.4 million from ₱0.6 million last year to ₱19.0 million as an associate posted positive actuarial adjustments.

Similarly, the Group reported a remeasurement gain on pension liability of ₱28.0 million as at March 31, 2017 compared to remeasurement loss of ₱6.3 million in 2016, both figures net of income tax effect, largely due to the higher market value of the investment in equity securities of the pension plan assets.

Total comprehensive income rose to ₱478.7 million from last year’s comprehensive income of ₱365.0 million due to the higher profits posted by STI ESG, the increase in market value of equities held by an associate compared with the same period last year and the remeasurement gain recognized attributable to higher market value of the investment in equity securities of the pension plan assets.

Earnings before interest, taxes, depreciation and amortization or EBITDA, computed as net income excluding provision for income tax, depreciation and amortization, effect of derecognition of a subsidiary, equity in net earnings (losses) of associates and joint ventures, interest expense, and interest income, increased by ₱246.7 million to ₱1,298.3 million from last year’s ₱1,051.6 million or 23%. EBITDA margin likewise improved from 45% last year to 50% this year.

Years ended March 31, 2016 vs. 2015

The continuous increase in number of enrollees in STI ESG owned and franchised schools propelled revenue growth by 17% or ₱350.0 million, reaching ₱2,350.5 million in total revenues this year.


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The student enrollment of the schools under STI ESG are as follows:

SY 2015-2016 SY 2014-2015 Increase (Decrease)

Enrollees Percentage

STI Network Owned schools 42,878 39,404 3,474 9%

Franchised schools 34,767 33,212 1,555 5%

Total Enrollees 77,645 72,616 5,029 7%

Tuition and other school fees increased by ₱328.5 million or 19% from SY 2014-2015’s ₱1,726.5 million to ₱2,055.0 million for SY 2015-2016, due to the increase in the student enrollment by 7% or 5,029 enrollees and the average increase of 5% in tuition fees implemented by most schools . In addition, STI ESG’s enrollment mix was more favorable in SY 2015-2016 than in SY 2014-2015, as enrollment leaned more towards STI network’s CHED four-year programs than the two-year programs. Proportion of CHED:TESDA:DepEd students are 86:12:02 for SY 2015-2016 as against 82:16:02 for SY 2014-2015. The four-year CHED programs charge higher tuition and bring in more revenue per student.

Revenues from educational services and royalty fees increased by ₱4.9 million and by ₱0.5 million, respectively, mainly due to the increased collections of the franchised schools. Revenues from educational services are derived as a percentage of the tuition and other school fees collected by the franchised schools from their students.

Sale of educational materials and supplies increased by 21% largely due to increased sale of uniforms.

Other revenues increased by 19% or P3.9 million largely due to the increase in number of students.

Cost of educational services increased by 13% or ₱76.9 million from ₱577.9 million last year to ₱654.8 million this year mostly due to the 21% or ₱28.2 million increase in depreciation expenses charged to direct cost. Faculty salaries and benefits increased by 12% largely due to the hiring of additional faculty members to handle the increased enrollment and the acquisition of the 5 schools from franchisees in October 2014.

Cost of educational materials and supplies sold increased by ₱10.8 million concomitant with the increase in sales.

General and administrative expenses rose by ₱67.6 million or 7% from ₱909.8 million last year to ₱977.4 million this year. Of the increase, ₱23.3 million was due to the increased depreciation charges substantially due to the depreciation expense recognized for the 4 floors of condominium units which were acquired by STI ESG in March 2015 in exchange for its land. The cost of advertising and promotions rose by ₱27.5 million as STI ESG stepped up its marketing campaign for both Tertiary and SHS programs. Professional fees rose by ₱8.4 million substantially due to legal fees related to the acquisition of various schools. Salaries and employee benefits also increased by ₱12.0 million due to the addition of employees from the newly acquired schools in October 2014 and the filling up of plantilla positions.

Rental income increased by twice as much as the previous year or ₱32.0 million or as revenues from lease of condominium units owned by STI ESG were recognized as at March 31, 2016.

Dividend income increased by ₱1.4 million due to dividends received from De Los Santos Medical Center.


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Equity in net earnings of associates and joint ventures decreased by 49% or ₱50.9 million as some associates generated lower profits as at March 31, 2016.

STI ESG recorded a net gain of ₱0.3 million from the disposal of transportation equipment last year.

Interest income continued to decline from P6.8 million in 2014 to ₱5.0 million in 2015 to ₱4.7 million in 2016 as bank interest rates on short-term placements remained low and cash balances were used to fully pay construction costs and other related capital expenditures.

On the other hand, interest expenses increased by ₱28.9 million due to the interest charges on the long term loans from China Bank which are now charged to operations with the completion of the projects funded by the principal amounts of the loans.

Provision for income tax rose by ₱4.0 million due to corresponding increase in taxable income.

STI ESG’s share in associates’ unrealized mark-to-market loss on available-for-sale financial assets increased by ₱292.7 million as an associate recognized fair value losses on its investments in equities.

Fair values of STI ESG’s investment in available-for-sale financial assets likewise declined, thus, from unrealized gain of ₱0.6 million, an unrealized loss of ₱0.3 million was shown in the report as at March 31, 2016.

STI ESG’s share in associates’ remeasurement gain (loss) on pension liability improved by ₱4.2 million from a loss of ₱3.6 million in March 2015 to a gain of ₱0.6 million, as at March 31, 2016, as several associates posted positive actuarial adjustments.

Meanwhile, STI ESG incurred remeasurement loss on pension liability of ₱7.0 million this year largely due to the decline in market value of the investment in equity securities of the pension plan assets.

Total comprehensive income decreased by ₱325.7 million due to unfavorable market conditions in the equities market which resulted in substantial unrealized mark-to-market losses as at March 31, 2016 as compared to same period in 2015.

Earnings before interest, taxes, depreciation and amortization or EBITDA, computed as net income excluding provision for income tax, depreciation and amortization, equity in net earnings (losses) of associates and joint ventures, interest expense, interest income, gain on exchange of land and excess of fair value of net assets over acquisition cost from a business combination, increased by ₱280.1 million in March 2016 to ₱1,051.6 million from ₱771.5 million or 36%. EBITDA margin likewise improved from 39% to 45% as at March 31, 2015 and 2016, respectively.


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Financial Highlights and Key Performance Indicators

March

Increase (Decrease)

(in millions except margins, financial ratios and earnings per share) 2017 2016

Amount %

Condensed Statements of Financial Position

Total assets 11,316.0 8,510.2

2,805.8

33.0

Current assets 3,458.8 920.1

2,538.7

275.9

Cash and cash equivalents 2,880.3 542.2

2,338.1

431.2

Equity attributable to equity holders of the parent 6,483.6 7,106.2

(622.6)

(8.8)

Total liabilities 4,824.0 1,408.2

3,415.8

242.6

Current liabilities 1,013.8 556.2

457.6

82.3

Financial ratios

Debt to equity ratio (1) 0.74 0.19

0.55

289.5

Current ratio (2) 3.41 1.65

1.76

106.7

Asset to equity ratio (3) 1.74 1.20

0.54

45.0

March Increase

(Decrease) (in millions except margins, financial ratios and earnings per share) 2017 2016

Amount %

Condensed Statements of Income

Revenues 2,603.2 2,350.5

252.7

10.8

Direct costs (4) 800.5 706.3

94.2

13.3

Gross profit 1,802.7 1,644.2

158.5

9.6

Operating profit 874.1 666.8

207.3

31.1

Other income-net (177.8)

73.3

(251.1)

(342.6)

Income before income tax 696.3 740.2

(43.9)

(5.9)

Net income 602.8 673.3

(70.5)

(10.5)


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March

Increase (Decrease)


Amount %

EBITDA (5) 1,298.3 1,051.6

246.7

23.5

Net income attributable to equity holders of the parent company 601.5 671.0

(69.5)

(10.4)

Earnings per share (6) 0.20 0.22

(0.02)

(9.1) Condensed Statements of Cash Flows

Net cash from operating activities 1,039.3 812.4

226.9

27.9

Net cash used in investing activities

(1,246.9)

(372.8)

(874.1)

234.5

Net cash provided by (used in) financing activities

2,545.7

(527.1)

3,072.8

(583.0)

March Increase

(Decrease) (in millions except margins, financial ratios and earnings per share) 2017 2016

Amount %

Financial Soundness Indicators Liquidity Ratios

Current ratio (2) 3.41

1.65

1.8

109.1

Quick ratio (7) 3.19 1.43

1.8

125.9

Cash ratio (8) 2.84 0.97

1.9

195.9 Solvency ratios

Debt to equity ratio (1) 0.74 0.19

0.6

315.8

Asset to equity ratio (3) 1.74 1.20

0.5

41.7

Interest coverage ratio (9) 11.59 15.67

(4.1)

(26.2)

Debt service coverage ratio (10) 1.57 7.07

(5.5)

(77.8)


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March

Increase (Decrease)


Amount %

Profitability ratios

EBITDA margin (11) 50% 45%

0.05

11.1

Gross profit margin (12) 69% 70%

(0.01)

(1.4)

Operating profit margin (13) 34% 28%

0.06

21.4

Net profit margin (14) 23% 29%

(0.06)

(20.7)

Return on equity (15) 9% 10%

(0.01)

(10.0)

Return on assets (16) 6% 8%

(0.02)

(25.0)

(1) Debt to equity ratio is measured as total liabilities, net of unearned tuition and other schools fees, divided by total equity.

(2) Current ratio is measured as current assets divided by current liabilities. (3) Asset to equity ratio is measured as total assets divided by total equity. (4) Direct costs is calculated by adding the costs of educational services and educational materials and supplies sold. (5) EBITDA is Net income excluding provision for income tax, interest expense, depreciation and amortization, equity in

net earnings (losses) of associates and joint ventures, effect of derecognition of a subsidiary, interest income, gain on exchange of land and excess of fair values of net assets acquired over acquisition cost.

(6) Earnings per share is measured as net income attributable to equity holders of the parent company divided by the weighted average number of outstanding common shares

(7) Quick ratio is measured as current assets less inventories and prepayments divided by current liabilities. (8) Cash ratio is measured as cash and cash equivalents divided by current liabilities. (9) Interest coverage ratio is measured as Net income excluding provision for income tax and interest expense divided by

interest expense. (10) Debt service coverage ratio is measured as EBITDA divided by total principal and interest to be paid within the next 12

months. (11) EBITDA margin is measured as EBITDA divided by total revenues. (12) Gross profit margin is measured as gross profit divided by total revenues. (13) Operating profit margin is measured as operating profit divided by total revenues. (14) Net profit margin is measured as net income after income tax divided by total revenues. (15) Return on equity is measured as net income attributable to equity holders of the parent Company divided by average

equity attributable to equity holders of the parent company. (16) Return on assets is measured as net income divided by average total assets.


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Financial Risk Disclosure

The Group’s present activities expose it to liquidity risk, credit risk, interest rate risk and capital risk. Liquidity risk – Liquidity risk relates to the possibility that the Group might not be able to settle its obligations/commitments as they fall due. To cover its financing requirements, the Group uses internally-generated funds and avails of various bank loans. The Group regularly evaluates available financial products and monitors market conditions for opportunities to enhance yields at acceptable risk levels. The debt service coverage ratio, as a bank requirement, is also monitored on a regular basis. The debt service coverage ratio is equivalent to EBITDA divided by total principal and interest due for the next twelve months. The Group monitors its debt service coverage ratio to keep it at a level acceptable to the Group and the lender bank. The Group’s policy is to keep the debt service coverage ratio not lower than 1.05:1.00. As at March 31, 2017 and March 31, 2016, the Group’s debt service coverage ratio is 1.57:1.00 and 7.07:1.00, respectively. Credit risk – Credit risk is the risk that the Group will incur a loss arising from students, franchisees or counterparties that fail to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk that the Group is willing to accept for each counterparty and by monitoring expenses in relation to such limits. It is the Group’s policy to require students to pay all their tuition and other incidental fees before they can get their report cards and other credentials. Receivable balances are monitored such that exposure to bad debts is minimal.

Interest rate risk - Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. While the Group’s long term debt has a floating interest rate, the Group elected to have the interest rate repriced every year, thus minimizing the exposure to market changes in interest rates.

Capital Risk- The Group’s objectives when managing capital are to provide returns for stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group monitors capital using the debt-to-equity ratio, which is computed as the total of current and noncurrent liabilities, net of unearned tuition and other school fees, divided by total equity. The Group monitors its debt-to-equity ratio to keep it at a level acceptable to the companies in the Group and the lender bank. The Group’s policy is to keep the debt-to-equity ratio at a level not exceeding level not exceeding 1.50:1.00.

As at March 31, 2017 and March 31, 2016, the Group’s debt-to-equity ratio is 0.74:1.00 and 0.19:1.00, respectively.


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Agreements/Commitments and Contingencies/Other Matters

a. There are no changes in accounting estimates used in the preparation of the audited consolidated financial statements for the current and prior financial periods.

b. On June 3, 2013, STI ESG executed a deed of pledge on all of its shares in De Los Santos Medical Center (formerly De Los Santos General Hospital) in favor of Neptune Stroika Holdings, Inc., a wholly-owned subsidiary of Metro Pacific Investments Corporation (MPIC), to cover the indemnity obligations of STI ESG enumerated in its investment agreement entered into in 2013 with MPIC. The carrying value of the investment in De Los Medical Center amounted to ₱25.9 million as at March 31, 2017 and 2016.

c. There are no material events and uncertainties known to management that would address the past and would have an impact on future operations of STI ESG.

d. There are no known trends, demands, commitments, events of uncertainties that will have an impact

on STI ESG’s liquidity except for the contingencies and commitments enumerated in Note 31 of the Notes to Consolidated Financial Statements attached as Annex “A”.

e. The various loan agreements entered into by STI ESG and the issuance of fixed rate bonds provide certain

restrictions and conditions with respect to, among others, change in majority ownership and management and maintenance of financial ratios. STI ESG is fully compliant with all the covenants of the loan agreements. Please see Notes 15, 17 and 32 of the Notes to Consolidated Financial Statements of the Company attached as Annex “A”.

f. The education landscape in the Philippines has changed with the introduction of the K to 12 program

which in summary adds two (2) years prior to tertiary education. For the schools in the Philippines that offer tertiary education, similar to STI ESG, this will mean two (2) academic years, that is, SY 2016-2017 and SY 2017-2018, with significantly reduced and minimal incoming college freshmen students.

This threat has been constructively converted into an opportunity by the Group. All 76 schools of STI ESG have been granted permits to offer SHS. Management is confident that all schools in the network are adequately prepared and ready to meet the challenges of the K to 12 program.

g. There are no significant elements of income or loss that did not arise from the Group’s continuing operations.

h. The Group’s business is linked to the academic cycle. The academic cycle which is one academic year starts in the month of June and ends in the month of March. The core business and revenues of the Group, which is mainly from tuition and other school fees, is recognized as income over the corresponding academic year to which they pertain.


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i. On May 18, 2016, STI ESG entered into a Memorandum of Agreement to acquire for ₱20.0 million the

net assets of an STI franchised school located in Santa Maria, Bulacan. On May 31, 2016, STI ESG made an initial deposit of ₱10.0 million for the planned acquisition. On February 8, 2017, STI ESG made an additional deposit of ₱8.0 million.

On April 4, 2017, STI ESG established STI College of Santa Maria, Inc. (STI Sta. Maria). On May 23, 2017, STI Sta. Maria entered into a Deed of Assignment with Halili Reyes Educational Institution, Inc. (HREI) where HREI assigned, transferred and conveyed in a manner absolute and irrevocable, and free and clear of all liens and encumbrances, to STI Sta. Maria all its rights, title and interest in its assets and liabilities for a price of ₱20.0 million. The assignment of the net assets shall retroact to April 1, 2017. On the same date, STI Sta. Maria paid the remaining balance of ₱2.0 million (see Note 36).

j. On August 16, 2016, STI Diamond entered into a Deed of Assignment with STI Novaliches whereby STI Diamond assigns, transfer and conveys in a manner absolute and irrevocable, and free and clear of all liens and encumbrances, unto STI Novaliches all their rights, title and interest in its assets and liabilities for a consideration of ₱75.7 million, payable in five years. Consequently, the management contract between STI ESG and STI Diamond was terminated and as a result, the latter was derecognized as a subsidiary of STI ESG (see Note 18).

k. On December 27, 2016, STI ESG, Abacus Global Technovisions, Inc., Vantage Realty Corporation, and Asean Commodity Enterprises, Inc., entered into a Memorandum of Agreement covering the purchase of certain parcels of land located in Poblacion, Lipa City, Batangas which will be the site of STI Lipa for a total price of ₱96.7 million. On July 5, 2017, STI ESG executed a Deed of Absolute Sale with Abacus Global Technovisions, Inc. for the purchase of a parcel of land with an area of 2,873 square meters situated at Poblacion, City of Lipa, Province of Batangas for a total consideration of ₱86.2 million. On the same date, STI ESG executed Deeds of Absolute Sale with Asean Commodity Enterprises for the purchase of two parcels of lot aggregating to 349 square meters at Poblacion, City of Lipa, Province of Batangas for a total consideration of ₱10.5 million. This will be the site of the new STI Academic Center Lipa ( see Notes 14 and 36).

l. On March 23, 2017, STI ESG listed its ₱3 Billion Series seven-year Bonds due 2024 and Series 10-year Bonds due 2027 on the PDEx secondary market. The P3.0 billion bond issue is the first tranche of STI ESG’s P5.0 billion fixed rate bonds program under its 3-year shelf registration with the SEC. The Bonds carry coupon rates of 5.8085% and 6.3756% for the 7-year and 10-year tenors, respectively. Interest payments are payable quarterly in arrears on June 23, September 23, December 23, and March 23 or the next business day if such dates fall on a non-banking day, of each year commencing on June 23, 2017, until and including the relevant maturity dates (see Note 17).

m. On April 21, 2017, On April 21, 2017, STI ESG, Mr. Tony Tan Caktiong (TTC), STI Tanauan, and Injap Investments, Inc. (Injap), referred collectively as the Joint Venture Parties, entered into an agreement to transform STI Tanauan into a Joint Venture Company which shall operate a farm-to-table school that offers courses ranging from farm production to food services.


Page 57 of 74

The Joint Venture Parties also agreed to increase STI Tanauan’s authorized capital stock to an amount that will be agreed by the Joint Venture Parties in a separate agreement. As agreed by the Joint Venture Parties, the increase in the authorized capital stock will be made through STI Tanauan’s declaration of stock dividends to STI ESG based on STI Tanauan’s unrestricted retained earnings as of March 31, 2017 and cash payments by the Joint Venture Parties. Additional amendments shall be made to STI Tanauan’s Articles of Incorporation and By-Laws to implement the intent of the parties under the Joint Venture Agreement. The equity sharing in the Joint Venture Company will be 60%, 25% and 15% for STI ESG, TTC and Injap, respectively. On June 21, 2017, in separate meetings, the stockholders and the Board of Directors (BOD) of STI Tanauan approved the increase in the authorized capital stock of the corporation from ₱1,000,000 divided into 10,000 shares with a par value of ₱100 to ₱75,000,000 divided into 750,000 shares with a par value of ₱100. The increase will be funded through the declaration of stock dividends and cash subscriptions by the shareholders. In the same meeting, the stockholders and the BOD approved the declaration of 150,000 shares as stock dividends with an aggregate par value of ₱15,000,000 to be distributed to stockholders of record as of March 31, 2017 based on the unrestricted retained earnings of STI Tanauan as shown in its audited financial statements as of March 31, 2017 (see Note 36).

Item 7. FINANCIAL STATEMENTS The March 31, 2017 Audited Consolidated Financial Statements and schedules listed in the accompanying index to Supplementary Schedules are incorporated by reference to this SEC Form 17-A.

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

1. The accounting firm of Sycip Gorres Velayo & Co. (SGV) has been the Company’s External Auditors for the past years. They were reappointed in the Annual Stockholders’ Meeting held on September 9, 2016, as external auditors for the ensuing fiscal year. A representative of SGV is expected to be present at the Annual Meeting of the Stockholders and will have the opportunity to make a statement if he or she so desires. The representative will also be available to respond to appropriate questions from the stockholders. Pursuant to SRC Rule 68 (3) (b) (iv), as amended (Rotation of External Auditors), the Company has engaged Mr. Benjamin N. Villacorte of SGV as the Partner-in-charge of the Company. This is his second year of engagement for STI ESG. 2. There has not been any disagreement between the Company and said accounting firm with regard to any matter relating to accounting principles or practices, financial statement disclosures or auditing scope or procedure.


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As stated in the March 31, 2017 “Statement of Management Responsibility for Financial Statements”, SGV is the appointed independent auditor of STI ESG. They have examined the financial statements of the Company in accordance with Philippine Standards on Auditing and have expressed their opinion on the fairness of presentation upon completion of such examination, in its report to the Board of Directors and stockholders. The Company’s Audit Committee reviews and approves the scope of audit work of the external auditor and the amount of audit fees for a given year. With respect to services rendered by the external auditor other than the audit of financial statements, the scope of and payment for the same are subject to review and approval by the management. Mr. Joaquin E. Quintos, Independent Director, is currently the Chairman of the Audit Committee while Messrs. Eusebio H. Tanco, Raul B. De Mesa and Ms. Yolanda M. Bautista are its Members. The aggregate fees for the services rendered by SGV to the Company, particularly for the audit of the financial statements for the years ended 31 March 2017 and 31 March 2016 and the six-months ended September 30, 2016 and 2015 are shown below: March 31, 2017

March 31, 2016

September 30, 2016 and 2015

The Company has no disagreements with its independent auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

Audit Fees OPE VAT TOTAL

AUDIT 2,550,000 285,000 340,200 3,175,200

OTHERS ‐

2,550,000 285,000 340,200 3,175,200

March 2017


AUDIT 5,180,000 515,536 683,464 6,379,000

OTHERS ‐

5,180,000 515,536 683,464 6,379,000

March 2016


AUDIT 10,000,000 1,046,401 1,325,568 12,371,969

OTHERS 800,000 11,250 97,350 908,600

10,800,000 1,057,651 1,422,918 13,280,569

September 2016 and 2015


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PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER A) Directors and Executive Officers

1) Directors, Independent Directors and Executive Officers The Company’s Articles of Incorporation provides for eleven (11) members of the Board. The term of office of the directors of the Company is one (1) year and they are to serve as such until the election and qualification of their successors. The following are the incumbent members of the Board of Directors: (a) Eusebio H. Tanco (b) Monico V. Jacob (c) Rainerio M. Borja (d) Raul B. De Mesa (e) Joseph Augustin L. Tanco (f) Ma. Vanessa Rose L. Tanco (g) Martin K. Tanco (h) Peter K. Fernandez (i) Joaquin E. Quintos IV (j) Ernest Lawrence Cu (k) Jesli A. Lapus

Messrs. Jesli A. Lapus, Ernest Lawrence Cu and Joaquin E. Quintos have been nominated as independent directors by the Nomination Committee. The Company has adopted and complied with Rule 38 of the Securities Regulation Code on the nomination of independent directors and the required number of independent directors. The corresponding ages, citizenships, business experiences and directorships held for the past five (5) years of the incumbent directors who have been nominated to the Board for the ensuing year are set forth below: Jesli A. Lapus, 67, Filipino, Independent Director Mr. Lapus is currently the Chairman and Independent Director of STI ESG. He is also a member of the Executive Committee and the Chairman of the Nomination Committee of STI ESG. He was first elected as Chairman and Independent Director on September 25, 2013. Mr. Lapus is also an Independent Director of STI Education Systems Holdings, Inc., Metropolitan Bank & Trust Company and Philippine Life Financial Assurance Corporation. He is a Governor of iACADEMY; Chairman of the Trust Banking Group of Metropolitan Bank and Trust Company, LBP Service Corporation, and Asian Institute of Management–Center for Tourism. He is also a Member of the Investment Committee of Philplans First, Inc. and Advisory Board Member of Radiowealth Finance Company, Inc.


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A multi-awarded executive in the private sector (i.e., manufacturing, financial services and international trade), Mr. Lapus has successfully managed and turned around firms and a universal bank in attaining industry leaderships. He was Managing Director of Triumph International (Phils.) Inc., President of Pacific Products, Inc., CFO of the RAMCAR Group of Companies and formerly connected with Sycip Gorres Velayo & Co. With a solid track record as a prominent professional executive in the private sector behind him, Mr. Lapus has the distinction of having served in the cabinets of three (3) Philippine Presidents namely: President Gloria Macapagal-Arroyo, President Fidel Ramos and President Corazon Aquino in the following capacities: Secretary, Department of Trade and Industry (2010); Secretary, Department of Education (2006-2010); President and CEO, The Land Bank of the Philippines (1992-1998); Undersecretary, Department of Agrarian Reform (1987-89). Mr. Lapus earned his Doctor of Public Administration (honoris causa) from Polythechnic University of the Philippines; Master in Business Management from Asian Institute of Management; Investment Appraisal and Management from Harvard University, USA; Management of Transfer of Technology from INSEAD, France; Project Management from BITS, Sweden and Personal Financial Planning in UCLA, USA. Monico V. Jacob, 72, Filipino, Director Mr. Jacob is the Vice Chairman and CEO of STI ESG and a member of the Executive Committee, Compensation Committee, and Nomination Committee. Mr. Jacob is also the President and CEO of STI Holdings, and a member of its Executive, Compensation and Compliance Committees. Mr. Jacob is the President of STI West Negros University, Eximious Holdings, Inc. (Formerly, Capital Managers and Advisors, Inc.), Maestro Holdings, Inc. (formerly STI Investments, Inc.) and Tantivy Holdings, Inc. (Formerly, Insurance Builders, Inc.) Mr. Jacob is the Chairman of Philippine Life Financial Assurance Corporation, Philhealthcare, Inc., Total Consolidated Asset Management, Inc., and Global Resource for Outsourced Workers, Inc., and Rosehills Memorial Phils., Inc. Mr. Jacob is also a non-Executive Director in Asian Terminals, Inc., and an Independent Director in Jollibee Foods Corp., Rockwell Land Corp., Phoenix Petroleum Philippines, Inc., 2Go Group, Inc., Lopez Holdings Corp., all publicly-listed companies. He also serves as a member of the board of directors of De Los Santos Medical Center and Information and Communications Technology (iACADEMY), Inc., Prior to his present positions, Mr. Jacob was the Chairman and CEO of Petron Corporation, and the Philippine National Oil Company (PNOC) and all of its subsidiaries. He also served as the General Manager of the National Housing Authority (NHA), and Chief Executive Officer of the Home Development Mutual Fund. He was also an Associate Commissioner for the Securities and Exchange Commission in 1986. Prior to government, he was a Partner of the law firm Jacob Acaban Corvera Valdez and Del Castillo and was an active trial lawyer. Today, he is a partner in the law firm of Jacob & Jacob. His areas of specialization are energy, corporate law, corporate recovery and rehabilitation work, including receivership and restructuring advisory for companies.


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Mr. Jacob is a member of the Management Association of the Philippines (MAP) of which he was President for 1998. He is also a member of the Integrated Bar of the Philippines. Mr. Jacob finished his Bachelor of Arts degree with a Major in Liberal Arts from the Ateneo de Naga University in 1966 and his Bachelor of Laws degree from the Ateneo de Manila University in 1971. Eusebio H. Tanco, 67, Filipino, Director Mr. Tanco is the Chairman of the Executive Committee, and Compensation Committee, and is a Director of STI ESG. He is also a member of the Audit Committee, and the Nomination Committee. Mr. Tanco is also Chairman of STI Holdings, and the Chairman of its Executive, Nomination and Compensation Committees. Mr. Tanco is Chairman of the Board and President of Prudent Resources, Inc., and Prime Power Holdings Corporation. He is the Chairman of the Executive Committee and Director of STI ESG and the Chairman of Mactan Electric Company, Philippines First Insurance Co. Inc., Venture Securities Inc., International Hardwood & Veneer Corp, GROW Vite, Inc., Delos Santos-STI College, STI West Negros University, and Eximious Holdings, Inc. (Formerly, Capital Managers and Advisors, Inc.) He is Vice-Chairman and President of Asian Terminals, Inc. Mr. Tanco is President of Total Consolidated Asset Management, Inc., Eujo Phils, Inc., Cement Center Inc., First Optima Realty Corp, Biolim Holdings and Management Corp (formerly Rescom Developers Inc.), Tantivy Holdings, Inc. (Formerly, Insurance Builders, Inc.), Bloom with Looms Logistics, Inc. (formerly STMI Logistics, Inc.), Marbay Homes Inc., Global Resource for Outsourced Workers, Inc., Amina, Inc., and CEO of Classic Finance Inc. Mr. Tanco is also a director in Maestro Holdings, Inc. (formerly STI Investments, Inc.), Philippine Life Financial Assurance Corp., Manila Bay Spinning Mills, Inc., United Coconut Chemicals, Inc., MB Paseo, Philippine Health Educators, Inc., iACADEMY, PhilhealthCare, Inc., Philippine Racing Club, Inc. and Leisure and Resorts World Corporation. Mr. Tanco is a director of the Philippine Stock Exchange. He is also Chairman of the Philippine-Thailand Business Council and the Philippines-UAE Business Council. He likewise sits as a member of the Board of Trustees of Philippines, Inc. and member of the Philippine Chamber of Commerce and Industry. Mr. Tanco earned his Master of Science in Economics degree from the London School of Economics and Political Science and his Bachelor of Science degree in Economics from the Ateneo de Manila University. He was also awarded a Doctorate of Humanities degree, honoris causa, from the Palawan State University. Peter K. Fernandez, 53, Filipino, President and Chief Operating Officer Mr. Fernandez is the President and Chief Operating Officer of STI ESG. Prior to this appointment, Mr. Fernandez served as Executive Vice President and Chief Operating Officer of STI ESG from 2004-2016. Prior to joining STI ESG, Mr. Fernandez was a member of the Asian Institute of Management faculty for four and a half years. Before joining AIM, Mr. Fernandez was a faculty member of the College of Computer Studies at the De La Salle University.


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Mr. Fernandez earned a Bachelor of Science degree in Electronics and Communications Engineering and a Master of Business Administration degree from the De La Salle University. Rainerio M. Borja, 54, Filipino, Director Mr. Borja serves as a Director of STI ESG and a member of the Election Committee. He is also a Director of STI Holdings and a member of its Executive and Nomination Committees. Mr. Borja is also a Director of PhilPlans, Inc. and Total Consolidated Asset Management Inc. He is also Chairman of the Board of Techzone Inc. and 88Gren Inc. Mr. Borja is the President of the Asia region for Alorica, comprising more than 34,0000 people in the Philippines, as well as delivery centers in Australia and China, for a total of 24 sites. Under his leadership, the Asia teams provide distinct capabilities to offer low-cost, high quality solutions to clients across the globe. Prior to this role, Mr. Borja was President of the Philippines and Australia for Expert Global Solutions, Inc. (EGS) for four years prior to EGS’ acquisition by Alorica in June 2016. Before joining EGS in 2012, he spent 12 years as President of Aegis PeopleSupport Philippines, a start-up company that he helped grow to more than 13,000 employees. In 2004, the company achieved a major milestone by doing an Initial Public Offering (IPO) in the United States, and being listed in NASDAQ as the only Business Process Outsourcing (BPO) company with its entire operations handled in the Philippines. Mr. Borja also established the expansion of BPO to Philippine provinces, as well as to other regions, such as San Jose, Costa Rica. Often credited as the “man behind the success of the call center and BPO industry” in the country, Mr. Borja is one of the founders and former chairman of the Information Technology and Business Process Association of the Philippines (IBPAP), formerly the Business Processing Association of the Philippines (BPA/P). He continues to support the industry by taking on leadership roles and sitting on the Board of Directors for both IBPAP and the Contact Center Association of the Philippines (CCAP). His opinions and contributions are highly valued by government and industry officials in the formulation of legislations and policies that govern the country's Information and Communications Technology (ICT) and BPO industry. Being one of the country's BPO industry ambassadors who supported the industry's phenomenal growth to now being one of the country's major economic contributors, Mr. Borja was the first recipient of the Individual ICT Contributor Award in the Philippines in 2007. Mr. Borja obtained his Bachelor of Science degree at the De La Salle University and Masters of Science in Economics units from the De La Salle Graduate School of Business and Economics. Ernest Lawrence Cu, 57, Filipino, Independent Director Mr. Cu is an Independent Director of STI ESG. Mr. Cu is an Independent Director of STI Holdings since December 19, 2012 and is likewise a member of its Audit and Nomination Committees. Currently, Mr. Cu is the President and Chief Executive Officer of Globe Telecom. He is a Director of Asiacom Philippines, Prople BPO, Inc., Games Services Group, and Concetti Globali Inc. He is also a Trustee of Ayala Foundation, Inc.


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Mr. Cu has a Bachelor of Science degree in Industrial Management Engineering from De La Salle University in Manila, and an M.B.A. from the J.L. Kellogg Graduate School of Management, Northwestern University. Raul B. De Mesa, 75, Filipino, Director Mr. De Mesa is a Director of STI ESG and a member of the Compensation and Audit Committee. Mr. De Mesa served as the President and Chief Executive Officer of Bank of Commerce. Mr. De Mesa is a distinguished banker with substantial years of experience in the financial industry. Prior to Bank of Commerce, he has 37 years of banking experience, having occupied various positions in several banking institutions such as Security Bank, Manila Banking Corporation, Far East Bank & Trust Company. Mr. De Mesa is a Director at CAP Life Insurance Corporation. He served as a Director of Bank of Commerce. Mr. De Mesa served as an Independent Director of Liberty Telecoms Holdings Inc. since 2004. Mr. De Mesa is presently the Chairman of the boards of Abacore Capital Holdings, Inc. and Prime Star Development Bank; and Chairman and President of RBM Holdings, Inc. and Pampanga Auto Sales, Inc. He is an independent director of Pride Resources Infrastructure Development Corporation, Montemaria Asia Pilgrims, Inc. and Philab Holdings Corporation. He is a Director of Commerce and Trade Insurance Brokerage, Inc. and Bancommerce Investment Corporation. Joseph Augustin L. Tanco, 36, Filipino Mr. Tanco is a Director and member of the Nomination Committee of STI ESG. Mr. Tanco is also a Director of STI Holdings. He is likewise the Vice President for Investor Relations and a member of the Compensation Committee of STI Holdings. Mr. Tanco is currently the President and Chief Executive Officer of Philippine Life Financial Assurance Corporation, PhilhealthCare, Inc. and Comm&Sense, Inc. He founded Comm&Sense, Inc., an integrated marketing and communications agency offering comprehensive services in the areas of creative design, event conceptualization and management, public relations and promotions, in 2005. Mr. Tanco serves as Director and Treasurer of PhilPlans First, Inc., Director and member of the Nomination and Election Committee of STI Education Services Group, Inc., Director and Vice President of Eujo Phils. Inc., Director of Maestro Holdings, Inc. (formerly STI Investments, Inc.), iACADEMY, STI West Negros University, Eximious Holdings, Inc. (Formerly, Capital Managers and Advisors, Inc.), Prime Power Holdings Corporation, Global Resource for Outsourced Workers (GROW), Venture Securities, Inc., Bloom with Looms Logistics, Inc. (formerly Southern Textiles Mills, Inc.) and Biolim Holdings & Management Corporation (formerly Rescom Developers, Inc.). Furthermore, Mr. Tanco is an active member of the Junior Chamber International Philippines (JCI) where he was Chapter President of JCI Ortigas in 2012. He was Area Director for Individual for Metro Area 2 and National Chairman for Nothing but Nets in 2013 and National Chairman for The Outstanding Young Men (TOYM) in 2015. He also became a mentor for BS Entrepreneurship at the University of Asia and the Pacific in 2012. Mr. Tanco is a graduate of the University of Asia and the Pacific with a Bachelor of Science degree in Entrepreneurial Management. He obtained his Master in Business Administration from the Ateneo Graduate School of Business.


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Maria Vanessa Rose L. Tanco, 39, Filipino, Director Ms. Tanco is a Director of STI ESG. Ms. Tanco is also a Director and member of the Nomination Committee of STI Holdings. She also holds directorships at STI West Negros University, STI ESG, PhilPlans First, Inc., and Philhealth Care, Inc. Currently, she is the President and CEO of Information and Communications Technology Academy, Inc. or popularly known as iACADEMY. Ms. Tanco obtained her Masters degree in Business Administration at the University of Southern California, and her Bachelor of Science degree in Legal Management at Ateneo de Manila University. Martin K. Tanco, 52, Filipino, Director Mr. Tanco is a Director of STI ESG. He is also a Director of STI Holdings and is likewise a member of its Executive and Audit Committees. Mr. Tanco is the Director for Investment of Philplans First, Inc. He is the President of the Philfirst Condominium Association. Mr. Tanco is also a director of Manila Bay Thread Corporation (Formerly: Coats Manila Bay). Mr. Tanco earned his Bachelor of Science Degree in Electrical Engineering from the University of Southern California. He obtained his Master of Science degree in Electrical Engineering and Master in Business Administration from the University of Southern California. Joaquin E. Quintos IV, 57, Filipino, Independent Director Mr. Quintos was first elected as Independent Director on October 20, 2011. Mr. Quintos has been a member of the senior leadership team of First Philippine Holdings Corporation, a publicly listed conglomerate engaged in energy, manufacturing, property, and construction businesses, since 2015. He is also a member of the board of several operating subsidiaries of the group. Prior to this role, Mr. Quintos was President and CEO of Prople, a software and business process services company which he joined in 2009. Prior to Prople, Jajo had a successful 27-year career at IBM. During his stint at IBM, Mr. Quintos held various management and senior leadership positions in the Philippines, in IBM’s regional headquarters in Singapore, and finally in IBM’s corporate headquarters in New York. He retired from IBM Philippines in 2009 where he last served as Chairman and Country General Manager. He is currently a member of the boards of Philippine American Life and General Insurance Company, iPeople, Skycable, Vicsal Investment, AB Capital Investment, and Energy Development Corp. He is also a member of the board of the Credit Information Corporation, the Philippines’ central credit information registry. He is also a trustee of the Knowledge Channel Foundation. Mr. Quintos was formerly the Chairman of Operation Smile Philippines and the Chairman of the ICT Panel of Republic of the Philippines Joint Congressional Committee on Science and Technology. He also previously served as the Chairman of De La Salle University Manila and Co-Chairman of De La Salle


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Philippines which oversees the unified administration of the network of 17 La Sallian institutions in the Philippines. Mr. Quintos is a graduate of the University of the Philippines with a Bachelor of Science degree in Industrial Engineering, cum laude. Yolanda M. Bautista, 65, Filipino, Treasurer Ms. Bautista has served as the Chief Finance Officer and Treasurer of STI ESG since 2003. Ms. Bautista is also the Treasurer of STI Holdings and a member of its Executive, Compensation and Compliance Committees. Ms. Bautista is Chairman and President of Corporate Reference, Inc., Lakeview Realty, Inc. and Yellow Meadows Business Ventures, Inc. Ms. Bautista serves as Director and Treasurer of Eximious Holdings, Inc. (Formerly, Capital Managers and Advisors, Inc.), Banclife Insurance Co., Inc., Tantivy Holdings, Inc. (Formerly, Insurance Builders, Inc.), DLS-STI College, Inc., and Information and Communications Technology Academy (iACADEMY), Inc. She is also the Group Chief Finance Officer of Philippine Life Financial Assurance Corporation and Philhealthcare, Inc. as well as the Chief Finance Officer and Treasurer of STI ESG, STI West Negros University and Maestro Holdings, Inc.. Ms. Bautista is a Director of Attenborough Holdings Corp., Philippine Healthcare Educators, Inc., GROW Inc., Grow Vite Staffing Services, Inc. and Bloom with Looms Logistics, Inc. (Formerly Southern Textiles Mills, Inc.) She serves as Treasurer of PhilPlans First, Inc., Aberlour Holding Company, Daven Holdings, Inc., Harbourside Holding Corporation, Maestro Holdings, Inc. (Formerly: STI Investments, Inc.), Morray Holdings, Inc., Kusang Loob Foundation, Inc., SG Holdings, Inc., Philippines First Condominium Corporation, Quantum Analytix, Inc., P & O Management Services Phils., Inc., TechGlobal Data Center, Inc., Techzone Condominium Corporation, Techzone Philippines, Inc. and Neschester Corporation. She is also Assistant Treasurer of Total Consolidated Asset Management, Inc. Ms. Bautista is a Certified Public Accountant. She graduated Magna Cum Laude from the University of Sto. Tomas with a Bachelor of Science degree in Commerce, major in Accounting. Arsenio C. Cabrera, Jr., 56, Filipino, Corporate Secretary Atty. Arsenio C. Cabrera, Jr. is the Corporate Secretary, General Counsel and Corporate Information Officer of STI ESG. He was also elected Corporate Secretary and Chairman of the Compliance Committee of STI Holdings and is also its current Corporate Information Officer. Atty. Cabrera is a Managing Partner of Herrera Teehankee & Cabrera Law Offices. He also serves as Corporate Secretary of Amina, Inc. Asiateleservices, Inc., BOIE Drug, Inc., BOIE, Incorporated, BOIE Prime, Inc., Bountiful Geomines, Inc., Calatagan Bay Realty, Inc., Canlubang Golf and Country Club, Inc., Classic Finance, Inc., Coinage, Inc., Comm & Sense, Inc., DLS-STI Colleges, Inc., DLS-STI College Quezon Avenue, Inc., Eximious Holdings, Inc. (Formerly, Capital Managers and Advisors, Inc.), EUJO Phils. Incorporated, First Optima Realty Corporation, GEOGRACE Resources Philippines, Inc., Gurango Software Corporation, Heritage Park Management, Inc., Lasik Surgery, Inc., Lorenzo Shipping Corporation, Maestro Holdings, Inc., Masbate13 Philippines, Inc., Mina Tierra Gracia, Inc., NiHAO


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Mineral Resources International, Inc., Oregalore, Inc., Palisades Condominium Corporation, Pay Philexchange, Inc., Philippine American Drug Company, Philippine First Condominium Corporation, Philippines First Insurance Co., Inc., Philippine Life Assurance Financial Corporation, Philhealthcare, Inc., Philplans First, Inc., Renaissance Condominium Corporation, Rosehills Memorial Management Philippines, Inc., Sinoma Energy Conservation (Philippines) Waste Heat Recovery Co., Inc., Sonak Holdings, Inc., STI West Negros University, Inc., Tantivy Holdings, Inc., (Formerly, Insurance Builders, Inc.], Techglobal Data Center, Inc., TechZone Philippines, Inc., Total Consolidated Asset Management, Inc., Trend Developers, Inc., Venture Securities, Inc., Villa Development Corporation and WVC Development Corporation. Atty. Cabrera holds a Bachelor of Laws (Second Honors) and a Bachelor of Science in Legal Management from the Ateneo De Manila University. Anna Carmina S. Herrera, 42, Filipino, Assistant Corporate Secretary Atty. Anna Carmina S. Herrera was elected Assistant Corporate Secretary of the Company on March 17, 2010. Atty. Herrera is a Senior Associate of Herrera Teehankee and Cabrera Law Offices. She also performs the role of Corporate Secretary of Dunes and Eagle Land Development Corporation, STI College Batangas, Inc., STI College of Kalookan, Inc., STI Dagupan, Inc., STI Diamond College, Inc. and STI Tuguegarao, Inc. She also serves as Assistant Corporate Secretary in a number of other corporations: Amica Corporation, Banclife Insurance Co., Inc., Lorenzo Shipping Corporation, Palisades Condominium Corporation, Philhealthcare, Inc., Philippines First Insurance Co., Inc., Philippine First Condominium Corporation, Philippine Life Financial Assurance Corporation and Venture Securities, Inc. Atty. Herrera received her Bachelor of Laws degree from the University of the Philippines in 2000.

(2) Significant Employees In general, the Company values its human resources. It expects the employees to do their share in achieving the Company’s set objectives. There is no person in the Company who is not an executive officer but is expected to make significant contribution in the business of the Company.

(3) Family Relationships

Mr. Joseph Augustin L. Tanco is the son of Mr. Eusebio H. Tanco. Ms. Ma. Vanessa Rose L. Tanco is the daughter of Mr. Eusebio H. Tanco. Mr. Martin Tanco and Mr. Eusebio H. Tanco are cousins. There are no other family relationships up to the 4th civil degree, either by consanguinity or affinity among the current Directors other than those already disclosed in this report.

(4) Involvement in Certain Legal Proceedings

None of the above named directors and executive officers of the Company have been involved in any of the following events for the past five (5) years and up to the date of this SEC Form 17-A:


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(a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

(b) any conviction by final judgment; (c) being subject to any order, judgment, or decree, not subsequently reversed, suspended or

vacated, of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking activities; and

(d) being found by a domestic or foreign court of competent jurisdiction (in a civil action), the

Commission or comparable foreign body, or a domestic or foreign Exchange or other organized trading market or self-regulatory organization, to have violated a securities or commodities law or regulation, and the judgment has not been reversed, suspended, or vacated.

Item 10. EXECUTIVE COMPENSATION (1) The directors each receive per diems amounting to ₱15,000.00 for their attendance to board and

committee meetings. There is no arrangement for compensation of directors. (2) The following table summarizes the aggregate compensation for the fiscal years ended March 31, 2015, 2016, and 2017. The amounts set forth in the table below have been prepared based on what the Company paid its directors and named executive officers as a group and other officers for the fiscal years ended March 31, 2015, 2016, and 2017 and what the Company expects to pay for the fiscal year ended March 31, 2017-2018. ANNUAL COMPENSATION

Year Ended March 31

Salaries and Bonus

Other Compensation

Chief Executive Officer and the Top Four Highly Compensated Officers*

2015 ₱ 19,915,075 None

2016 ₱ 23,853,754 None

2017 ₱ 26,955,603 None

20181 ₱ 30,998,944 None

Board of Directors

2015 ₱ 1,071,472 None

2016 ₱ 1,775,882 None

2017 ₱ 2,178,869 None

The compensation for board members comprises per diems. Notes: 1 Figures are estimated amounts.


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2 Named executives include: Monico V. Jacob (Vice Chairman and CEO), Peter K. Fernandez (President and COO), Engelbert L. De Guzman (VP for Communications and MIS), Wilfred S. Racadio (VP for Legal Affairs) and Juan Luis Fausto B. Tubongbanua (VP for Corporate and Information Services). (3) There are no actions to be taken with regard to any bonus, profit sharing, or other compensation plan, contract or arrangement in which any director, nominee for election as a director, or executive officer of the Company will participate. (4) There are no actions to be taken with regard to any pension or retirement plan in which any such person will participate. (5) There are no actions to be taken with regard to the granting or extension to any such person of any option, warrant or right to purchase any securities.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(1) Security Ownership of Certain Record and Beneficial Owners and Management

(a) Security Ownership of Certain Record/Beneficial Owners as of March 31, 2017

As of March 31, 2017, the following stockholders are the only owners of more than 5% of the Company’s voting capital stock, whether directly or indirectly, as record owner or beneficial owner.

Class of Shares

Name, Address of Record Owner and

Relationship with Issuer

Name of Beneficial Owner

Nationality Shares Owned %

Ownership

Common STI Education Systems

Holdings, Inc. Direct Owner Filipino 3,040,623,037 98.66%

(b) Security Ownership of Management as of March 31, 2017

The following table sets forth as of March 31, 2017, the beneficial ownership of each director and

executive officer of the Company:

Name of Beneficial Owner Title of Class

Number of shares

Nature of ownership

Citizenship %

Jesli A. Lapus Common 1 (D) Filipino 0.00% Monico V. Jacob Common 2 (Trustee) Filipino 0.00% Eusebio H. Tanco Common 1 (D) Filipino 0.00% - Peter K. Fernandez Common 1 (D) Filipino 0.00% Raul B. De Mesa Common 2 (D) Filipino 0.00%


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Name of Beneficial Owner Title of Class

Number of shares

Nature of ownership

Citizenship %

Joseph Augustin L. Tanco Common 2 (D) Filipino 0.00% - Maria Vanessa Rose L. Tanco Common 1 (D) Filipino 0.00% - - Raniero M. Borja Common 2 (Trustee) Filipino 0.00% Ernest Lawrence Cu Common 2 (Trustee) Filipino 0.00% Joaquin E. Quintos Common 1 (D) Filipino 0.00% Martin K. Tanco Common 1 (D) Filipino 0.00%

(c) Voting Trust Holders of 5% or More

As of March 31, 2017, no person holds at least 5% or more of a class under a voting trust or similar agreement.

(d) Changes in Control There is no arrangements entered into by STI ESG or any of its stockholders which may result in a change of control of STI ESG.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has the following major transactions with related parties: Land Held for Swap On March 21, 2013, the Board of STI ESG approved the transfer of land to Techzone Philippines, Inc. (Techzone), a company under common control with the Group, in exchange for condominium units. In April 2013, STI ESG and Techzone entered into a real estate mortgage amounting to P800 million with STI ESG’s land as collateral for Techzone’s loan, to obtain the funds needed for Techzone to develop the property. In August 2013, the Deed of Absolute Sale for the sale of the land was executed between STI ESG and TechZone in accordance with the BOD approval. Title to the land has now been transferred in favor of TechZone and consequently, the amount was reclassified, including other directly attributable costs, as “Condominium deposit.” Development of the condominium project is likewise ongoing. As of March 31, 2015, TechZone has already completed the construction of the condominium units and has turned-over the units for retrofitting. As a result, the Company applied the “Condominium deposit” amounting to P396.3 million and recognized the total purchase price of the condominium units amounting to P560.0 million plus directly attributable costs amounting to P8.4 million, under the “Investment properties” account. The resulting difference, which amounted to P172.1 million, was accounted for as “Gain on exchange of land” in the 2015 consolidated statement of comprehensive income.


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Consultancy Agreement with STI Holdings The Company entered into an agreement with STI Holdings on the rendering of advisory services starting January 01, 2013. Contract of Lease STI ESG entered into a Contract of Lease with First Optima Realty Corporation on January 7, 2014. The contract covers lease of three (3) parcels of land in Poblacion, Lucena City, Quezon for a period of 25 years commencing on January 1, 2014 and expiring on January 1, 2039 for P2.1 million per annum, exclusive of taxes. Conversion of advances to equity

STI Taft On December 1, 2015, the BOD of STI Taft approved the application for an increase in authorized capital stock from 5,000 shares with ₱100 par value per share to 750,000 shares with ₱100 par value per share. Subsequently, STI Taft and the Company agreed to convert a portion of STI Taft’s advances from STI ESG amounting to ₱49.0 million to deposit for future stock subscriptions. On April 4, 2016, the SEC approved STI Taft’s increase in authorized capital stock to ₱75.0 million. As at March 31, 2017, STI Taft became a 99.9%-owned subsidiary of STI ESG.

STI Dagupan On February 27, 2015, the BOD of STI Dagupan approved the application for an increase in authorized capital stock from ₱0.5 million to ₱35.0 million and the opening for subscription of 72,000 common shares with an aggregate par value of ₱7.2 million. Subsequently, STI ESG subscribed to 32,000 shares or an aggregate par value of ₱3.2 million. The BOD of STI Dagupan also approved the equity conversion of STI Dagupan’s advances from STI ESG amounting to ₱19.8 million. As at March 31, 2017, STI ESG’s ownership over STI Dagupan increased from 77% to 99.9%. Deed of Assignment of net assets

On August 16, 2016, STI Diamond entered into a Deed of Assignment with STI Novaliches whereby STI Diamond assigns, transfer and conveys in a manner absolute and irrevocable, and free and clear of all liens and encumbrances, unto STI Novaliches all their rights, title and interest in its assets and liabilities for a consideration of P75.7 million, payable in five years. Consequently, the management contract between STI ESG and STI Diamond was terminated and as a result, the latter was derecognized as a subsidiary of STI ESG (see Note 18). Deed of Assignment of net assets On May 18, 2016, STI ESG entered into a Memorandum of Agreement to acquire for ₱20.0 million the net assets of an STI franchised school located in Santa Maria, Bulacan. On May 31, 2016, STI ESG made an


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initial deposit of ₱10.0 million for the planned acquisition. On February 8, 2017, STI ESG made an additional deposit of ₱8.0 million.

On April 4, 2017, STI ESG established STI College of Santa Maria, Inc. (STI Sta. Maria). On May 23, 2017, STI Sta. Maria entered into a Deed of Assignment with Halili Reyes Educational Institution, Inc. (HREI) where HREI assigned, transferred and conveyed in a manner absolute and irrevocable, and free and clear of all liens and encumbrances, to STI Sta. Maria all its rights, title and interest in its assets and liabilities for a price of ₱20.0 million. The assignment of the net assets shall retroact to April 1, 2017.

On the same date, STI Sta. Maria paid the remaining balance of ₱2.0 million (see Note 36).

Joint Venture Agreement

In January 2017, STI ESG and Mr. Tony Tan Caktiong (TTC), Chairman and Founder of Jollibee Foods Corporation signed a Memorandum of Understanding to establish an academic institution with programs in agro-entrepreneurship, logistics, and quick service restaurants, among others that are more responsive to the needs of the labor market. The program will be piloted in STI Tanauan in Batangas featuring state-of-the-art agriculture facilities and equipment such as greenhouses, field laboratories, livestock and poultry farms, as well as rainwater harvesting system for irrigation and other uses. On April 21, 2017, STI ESG, STI College Tanauan, Inc. (STI Tanauan), Mr. Tony Tan Caktiong (TTC) and Injap Investments, Inc. (Injap), referred collectively as the Joint Venture Parties, entered into an agreement to transform the STI Tanauan into a Joint Venture Company which shall operate a farm-to-table school that offers courses ranging from farm production to food services. The Joint Venture Parties also agreed to increase STI Tanauan’s authorized capital stock to an amount that will be agreed by the Joint Venture Parties in a separate agreement. As agreed by the Joint Venture Parties, the increase in the authorized capital stock will be made through STI Tanauan’s declaration of stock dividends to STI ESG based on STI Tanauan’s unrestricted retained earnings as of March 31, 2017 and cash payments by the Joint Venture Parties. Additional amendments shall be made to the STI Tanauan’s Articles of Incorporation and By-Laws to implement the intent of the parties under the Joint Venture Agreement.

The equity sharing in the Joint Venture Company will be 60%, 25% and 15% to STI ESG, TTC and Injap, respectively. On June 21, 2017, in separate meetings, the stockholders and the Board of Directors (BOD) of STI Tanauan approved the increase in the authorized capital stock of the corporation from ₱1,000,000 divided into 10,000 shares with a par value of ₱100 to ₱75,000,000 divided into 750,000 shares with a par value of ₱100. The increase will be funded through the declaration of stock dividends and cash subscriptions by the shareholders. In the same meeting, the stockholders and the BOD approved the declaration of 150,000 shares as stock dividends with an aggregate par value of ₱15,000,000 to be distributed to stockholders of record as of March 31, 2017 based on the unrestricted retained earnings of STI Tanauan as shown in its

audited financial statements as of March 31, 2017 (see Note 36).

To date, there is no complaint received by the Company regarding related-party transactions.


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Transactions with Promoters There are no transactions with promoters within the past five (5) years.

PART IV – CORPORATE GOVERNANCE

Item 13. CORPORATE GOVERNANCE The Company adheres to the principles and practices of good corporate governance, as embodied in its Manual of Corporate Governance and related SEC Circulars. On March 9, 2011, the Company submitted to the SEC its Amended Manual on Corporate Governance dated February 22, 2011 incorporating the directory provisions of the Revised Code of Corporate Governance in order to comply with the adopted leading practices on good corporate governance. On July 18, 2014, the Company submitted the Amended Manual on Corporate Governance dated July 15, 2014 in compliance with SEC Memorandum Circular No. 9. There have been no deviations from the Company’s Manual of Corporate Governance. To ensure that the Company observes good corporate governance and management practices and assure shareholders that the Company conducts its business in accordance with the highest level of accountability, transparency and integrity, the Company has undertaken the continuous improvement and monitoring of its governance and management policies. The Company submits a Certificate of Compliance with the Manual on Corporate Governance on an annual basis to the SEC. The Company ensures that it has at least two (2) independent directors, or such number of independent directors that constitutes twenty percent (20%) of the members of the Board, whichever is higher, but in no case less than two (2). The Company, through its Nominations Committee, ensures that all the nominees to the Board possess all the qualifications and none of the disqualifications provided for in the Company’s By-Laws and Manual, the Corporation Code, Securities Regulation Code and other relevant laws, rules and regulations. The Company also has an Audit Committee, which is tasked to review the Audited Financial Statements of the Company. The Chairman of the Audit Committee is an independent director, and each member thereof has at least an adequate understanding or competence of most of the Company’s financial management systems and environment. The Company consistently strives to raise its financial reporting standards by adopting and implementing prescribed Philippine Financial Reporting Standards.


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PART V – EXHIBIT AND SCHEDULES

Item 14. EXHIBITS AND REPORTS ON SEC FORM 17-C (a) Exhibits and Schedules

Statement of Management’s Responsibility for Financial Statements Report of Independent Auditors Audited Financial Statements and Notes for the fiscal year ended March 31, 2017 Schedule A. Financial Assets in Equity Securities Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties Schedule C. Amounts Receivable/Payables from and to Related Parties which are eliminated

during the Consolidation of Financial Statements Schedule D. Intangible Assets – Other Assets Schedule E. Long term debt Schedule F. Indebtedness to Related Parties (Long Term Loans from Related Companies) Schedule G. Guarantees of Securities of Other Issuers Schedule H. Capital Stock Schedule I. Reconciliation of Retained Earnings Available for Dividend Declaration Schedule J. Map of the Relationships of the Companies within the Group Schedule K. Schedule of All the Effective Standards and Interpretations as of March 31, 2017 Schedule L. Financial Soundness Indicators Schedule M. Fixed Rate Bonds – Use of Proceeds

(b) Reports on SEC Form 17 – C (for the last six[6] months of the fiscal year) There is no other event filed with SEC for the last six [6] months of the fiscal year.


Page 74 of 74

SIGNATURES

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b. K to 12 Program

On May 15, 2013, RA No. 10533, otherwise known as the “Enhanced Basic Education Act of2013” was signed into law. This marked the introduction of the K to 12 program, which insummary, adds two (2) years of secondary education, otherwise known as Senior High School,prior to admission to tertiary education. For schools in the Philippines that offer tertiaryeducation, similar to STI ESG, this means a substantial reduction in incoming collegefreshmen students for two (2) academic years. This period covers School Years (SY) 2016-17and 2017-18.

Seeing the opportunity, management decided to capitalize on its nationwide presence andample facilities to be able to implement the first-to-market approach of the Senior HighSchool program. In 2014, DepEd granted a permit to offer Senior High School to sixty-seven(67) STI schools out of a total of ninety-two (92) schools. As at July 6, 2017, all 76 schools inthe STI ESG network have been granted the DepEd permit to offer Senior High School.

The two (2) program tracks covered by the permit are the Academic and Technical–Vocational–Livelihood Tracks. Under the Technical–Vocational–Livelihood Track, theCompany offers three strands with various specializations.

Academic Trackƒ Accountancy, Business and Managementƒ Humanities and Social Sciencesƒ Science, Technology, Engineering and Mathematicsƒ General Academic Strand

Technical–Vocational–Livelihood TrackInformation and Communications Technology (ICT) StrandSpecializations:ƒ Computer Programmingƒ Animationƒ Illustrationƒ Computer Hardware Servicingƒ Broadband Installation

Home Economics StrandSpecializations:ƒ Commercial Cookingƒ Cookeryƒ Bartendingƒ Food and Beverage Servicesƒ Tour Guiding Servicesƒ Travel Servicesƒ Tourism and Promotion Servicesƒ Front Office Servicesƒ Housekeeping

Industrial Arts StrandSpecialization:ƒ Consumer Electronics Servicing

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On August 10, 2015, DepEd granted a permit to Information and CommunicationsTechnology Academy, Inc. (iACADEMY, a subsidiary of STI ESG until September 2016) tooffer Senior High School. iACADEMY offers three tracks, as follows:

ƒ Academic Trackƒ Accountancy, Business and Managementƒ Humanities and Social Science

ƒ Technical–Vocational TrackICT StrandSpecializations:ƒ Computer Programmingƒ Animation

Home Economics StrandSpecialization:ƒ Fashion Design

ƒ Arts and Design Trackƒ Media and Visual Arts

The Senior High School offering of STI ESG aims to minimize the impact of the expectedreduction in enrollment since there will be a substantially reduced number of collegefreshmen during the transition period from Senior High School to College. Likewise, there isan opportunity for STI ESG and iACADEMY to increase its student retention and migrationwhen the students graduate from Senior High School and decide to pursue a Baccalaureatedegree.

In September 2016, STI Holdings acquired 100% interest of iACADEMY from STI ESG(see Note 10).

c. Merger with Several Majority and Wholly-Owned Subsidiaries

On December 9, 2010, the Company’s stockholders approved the following mergers:

ƒ Phase 1: The merger of three (3) majority-owned schools and fourteen (14) wholly-ownedschools with the Company, with the Company as the surviving entity. The Phase 1merger was approved by the CHED and the SEC on March 15, 2011 and May 6, 2011,respectively.

ƒ Phase 2: The merger of one (1) majority-owned school and eight (8) wholly-owned pre-operating schools with the Company, with the Company as the surviving entity. ThePhase 2 merger was approved by the CHED and the SEC on July 18, 2011 and August 31,2011, respectively.

On September 25, 2013, the Board of Directors (BOD) approved an amendment to the Phase 1and 2 mergers whereby the Company would issue shares at par value, to the stockholders ofthe non-controlling interests. In 2014, STI ESG issued 1.9 million additional shares at parvalue to the stockholders of one of the merged schools. As at July 6, 2017, the amendment ispending approval by the SEC.

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Also on September 25, 2013, the BOD approved the Phase 3 merger whereby STI CollegeTaft, Inc. (STI Taft) and STI College Dagupan, Inc. (STI Dagupan) will be merged with theCompany, with the Company as the surviving entity. On August 5, 2016, the Company filedits application for merger with the SEC. As at July 6, 2017, the application for merger ispending approval by the SEC.

As at July 6, 2017, the Company’s request for confirmatory ruling on the tax-free merger fromthe Philippine Bureau of Internal Revenue (BIR) is still pending.

The registered office address of the Company is STI Academic Center Ortigas-Cainta, OrtigasAvenue Extension, Cainta, Rizal.

The accompanying parent company financial statements were approved and authorized for issueby the BOD on July 6, 2017.

2. Basis of Preparation and Summary of Significant Accounting Policies

Basis of PreparationThe accompanying parent company financial statements have been prepared on a historical costbasis, except for quoted available-for-sale (AFS) financial assets which have been measured at fairvalue, certain inventories which have been measured at net realizable value, certain investments insubsidiaries, associates and joint ventures which have been measured at recoverable amount andrefundable deposits which are measured at amortized cost. The parent company financialstatements are presented in Philippine Peso (₱), which is the Company’s functional andpresentation currency and all values are rounded to the nearest peso, except when otherwiseindicated.

Statement of ComplianceThe accompanying parent company financial statements, which were prepared for submission tothe SEC and BIR, are prepared in accordance with PFRS. PFRS also include PhilippineAccounting Standards (PAS) and Philippine Interpretations based on equivalent interpretationsfrom the International Financial Reporting Interpretations Committee (IFRIC) adopted by thePhilippine Financial Reporting Standards Council (FRSC).

Changes in Accounting Policies and DisclosuresThe accounting policies adopted are consistent with those of the previous financial year, except forthe adoption of the new and amended PFRS that became effective beginning on April 1, 2016.The adoption of these new standards and amendments did not have any significant impact on theparent company financial statements:

ƒ PFRS 10, Consolidated Financial Statements, and PAS 28, Investments in Associates and Joint Ventures – Investment Entities: Applying the Consolidation Exception

(Amendments)ƒ PFRS 11, Joint Arrangements – Accounting for Acquisitions of Interests (Amendments)ƒ PAS 1, Presentation of Financial Statements – Disclosure Initiative (Amendments)ƒ PFRS 14, Regulatory Deferral Accountsƒ PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture – Bearer Plantsƒ PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets – Clarification of

Acceptable Methods of Depreciation and Amortization (Amendments)ƒ Annual Improvements to PFRS (2012 – 2014 cycle)

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ƒ PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations – Changes inMethods of Disposal

ƒ PFRS 7, Financial Instruments: Disclosures – Servicing Contractsƒ PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed Interim

Financial Statementsƒ PAS 19, Employee Benefits – regional market issue regarding discount rate

PAS 34, Interim Financial Reporting – disclosure of information ‘elsewhere in the interimfinancial report’

Standards Issued but Not Yet EffectiveThe standards and interpretations that are issued but not yet effective as at March 31, 2017 arelisted below. The Company intends to adopt these standards when they become effective.Adoption of these standards and interpretations are not expected to have any significant impact onthe parent company financial statements.

Effective April 1, 2018

ƒ PFRS 9, Financial Instruments

Deferred

ƒ Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estateƒ PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint

Ventures - Sale or Contribution of Assets between an Investor and its Associate or JointVenture

The Company has not early adopted the previously mentioned standards. The Company continuesto assess the impact of the above new, amended and improved accounting standards andinterpretations effective subsequent to March 31, 2017 on its parent company financial statementsin the period of initial application. Additional disclosures required by these amendments will beincluded in the parent company financial statements when these amendments are adopted.

The following new standards issued by the International Accounting Standards Board have not yetbeen adopted by the FRSC.

ƒ PFRS 15, Revenue from Contracts with Customers (effective January 1, 2018)ƒ PFRS 16, Leases (effective January 1, 2019)

The Company is currently assessing the impact of IFRS 15 and IFRS 16 and plans to adopt thenew standards on their required effective dates once adopted locally.

Current versus Noncurrent ClassificationThe Company presents assets and liabilities in the parent company statement of financial positionbased on current/noncurrent classification. An asset is current when:

ƒ It is expected to be realized or intended to be sold or consumed in the normal operating cycleƒ It is held primarily for the purpose of tradingƒ It is expected to be realized within twelve months after the reporting period, orƒ It is cash or cash equivalent unless restricted from being exchanged or used to settle a liability

for at least twelve months after the reporting period

All other assets are classified as noncurrent.

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A liability is current when:

ƒ It is expected to be settled in the normal operating cycleƒ It is held primarily for the purpose of tradingƒ It is due to be settled within twelve months after the reporting period, orƒ There is no unconditional right to defer the settlement of the liability for at least twelve

months after the reporting period

The Company classifies all other liabilities as noncurrent.

Deferred tax assets and liabilities are classified as noncurrent assets and liabilities, respectively.

Fair Value MeasurementThe Company measures financial instruments, such as AFS financial assets, at fair value at eachreporting date. Also, the fair values of financial instruments measured at amortized cost andinvestment properties are disclosed in the notes to the parent company financial statements.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer theliability takes place either:

ƒ In the principal market for the asset or liability, orƒ In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest. A fair value measurement of a non-financial asset takes into account amarket participant’s ability to generate economic benefits by using the asset in its highest and bestuse or by selling it to another market participant that would use the asset in its highest and bestuse.

The Company uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observableinputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the parent companyfinancial statements are categorized within the fair value hierarchy, described as follows, based onthe lowest level input that is significant to the fair value measurement as a whole:

ƒ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilitiesƒ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is directly or indirectly observableƒ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is unobservable

For assets and liabilities that are recognized in the parent company financial statements on arecurring basis, the Company determines whether transfers have occurred between levels in thehierarchy by re-assessing categorization (based on the lowest level input that is significant to thefair value measurement as a whole) at the end of each reporting period.

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Management determines the policies and procedures for both recurring fair value measurementand non-recurring measurement.

External valuers are involved for valuation of significant assets, such as investment property.Involvement of external valuers is decided upon annually. Selection criteria include marketknowledge, reputation, independence and whether professional standards are maintained.Management decides, after discussions with the external valuers, which valuation techniques andinputs to use for each case.

At each reporting date, the management analyzes the movements in the values of assets andliabilities which are required to be re-measured or re-assessed as per accounting policies. For thisanalysis, the management verifies the major inputs applied in the latest valuation by agreeing theinformation in the valuation computation to contracts and other relevant documents.

Management, in conjunction with the Company’s external valuers, also compares each change inthe fair value of each asset and liability with relevant external sources to determine whether thechange is reasonable.

For the purpose of fair value disclosures, the Company has determined classes of assets andliabilities on the basis of the nature, characteristics and risks of the asset or liability and the levelof the fair value hierarchy as explained above.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash with original maturities of up tothree months or less from date of acquisition and are subject to an insignificant risk of change invalue.

Financial Assets

Initial Recognition. Financial assets are classified as financial assets at fair value through profit orloss (FVPL), loans and receivables, held-to-maturity (HTM) investments, AFS financial assets, oras derivatives designated as hedging instruments in an effective hedge, as appropriate. TheCompany determines the classification of its financial assets at initial recognition and, whereallowed and appropriate, re-evaluates the designation of such assets at each financial year-end.

Financial assets are recognized initially at fair value plus, in the case of financial assets not atFVPL, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame establishedby regulation or convention in the market place (regular way purchases) are recognized on thetrade date, i.e., the date that the Company commits to purchase or sell the asset.

The Company does not have financial assets at FVPL, HTM investments or derivatives.

Subsequent Measurement

Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments and are not quoted in an active market. Such financial assets are carried atamortized cost using the effective interest rate, or EIR, method. This method uses an EIR thatexactly discounts estimated future cash receipts through the expected life of the financial asset tothe net carrying amount of the financial asset. Gains and losses are recognized in the parent

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company statement of comprehensive income when the loans and receivables are derecognized orimpaired, as well as through the amortization process. Interest earned is recognized as “Interestincome” in profit or loss. Assets in the category are included in the current assets except formaturities greater than 12 months after the end of the reporting period, which are classified asnoncurrent assets.

The Company’s cash and cash equivalents, receivables, and deposits (included under the“Goodwill, intangible and other noncurrent assets” account) are classified in this category.

AFS Financial Assets. AFS financial assets are those nonderivative financial assets that are notclassified as financial assets at FVPL, loans and receivables or HTM investments. They arepurchased and held indefinitely, and maybe sold in response to liquidity requirements or changesin market conditions.

After initial measurement, AFS financial assets are subsequently measured at fair value withunrealized gains or losses being recognized under the “Unrealized mark-to-market gain (loss) onavailable-for-sale financial assets” account in other comprehensive income (OCI) until theinvestment is derecognized or determined to be impaired, at which time the cumulative gain orloss previously recorded in OCI is included in profit or loss. Interest earned on the investments isreported as interest income using the effective interest rate method. Dividends earned oninvestments are recognized in profit or loss when the right to receive payment has beenestablished. AFS financial assets are classified as noncurrent assets unless the intention is todispose such assets within 12 months from financial reporting date.

The fair value of AFS financial assets consisting of any investments that are actively traded inorganized financial markets is determined by reference to market closing quotes as at financialreporting date.

The Company’s investments in club and ordinary shares are classified in this category.

Unlisted investments in shares of stock, for which no quoted market prices and no other reliablesources of their fair values are available, are carried at cost.

Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of agroup of similar financial assets) is primarily derecognized when:

ƒ The rights to receive cash flows from the asset have expired, orƒ The Company has transferred its rights to receive cash flows from the asset or has assumed an

obligation to pay the received cash flows in full without material delay to a third party under a‘pass-through’ arrangement;

ƒ The Company has transferred its right to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of ownership of the asset, or (b) theCompany has neither transferred nor retained substantially all the risks and rewards of theasset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has enteredinto a pass-through arrangement, it evaluates if and to what extent it has retained the risks andrewards of ownership. When it has neither transferred nor retained substantially all of the risksand rewards of the asset, nor transferred control of the asset, the Company continues to recognizethe transferred asset to the extent of the Company’s continuing involvement. In that case, theCompany also recognizes an associated liability. The transferred asset and the associated liabilityare measured on a basis that reflects the rights and obligations that the Company has retained.

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Continuing involvement that takes the form of a guarantee over the transferred asset is measuredat the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Company could be required to repay.

Impairment of Financial Assets Carried at Amortized Cost. The Company assesses, at eachreporting date, whether there is any objective evidence that a financial asset or a group of financialassets is impaired. An impairment exists if one or more events that has occurred since the initialrecognition of the asset (an incurred ‘loss event’), has an impact on the estimated future cash flowsof the financial asset or the group of financial assets that can be reliably estimated. Evidence ofimpairment may include indications that the debtors or a group of debtors is experiencingsignificant financial difficulty, default or delinquency in interest or principal payments, theprobability that they will enter bankruptcy or other financial reorganization and observable dataindicating that there is a measurable decrease in the estimated future cash flows, such as changesin arrears or economic conditions that correlate with defaults.

For financial assets carried at amortized cost, the Company first assesses whether impairmentexists individually for financial assets that are individually significant, or collectively for financialassets that are not individually significant.

If the Company determines that no objective evidence of impairment exists for an individuallyassessed financial asset, whether significant or not, it includes the asset in a group of financialassets with similar credit risk characteristics and collectively assesses them for impairment.Assets that are individually assessed for impairment and for which an impairment loss is, orcontinues to be, recognized are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the asset’scarrying amount and the present value of estimated future cash flows (excluding future expectedcredit losses that have not yet been incurred). The present value of the estimated future cash flowsis discounted at the financial asset’s original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the lossis recognized in profit or loss. Interest income continues to be accrued on the reduced carryingamount and is accrued using the rate of interest used to discount the future cash flows for thepurpose of measuring the impairment loss. Loans together with the associated allowance arewritten off when there is no realistic prospect of future recovery and all collateral has beenrealized or has been transferred to the Company. If, in a subsequent year, the amount of theestimated impairment loss increases or decreases because of an event occurring after theimpairment was recognized, the previously recognized impairment loss is increased or reduced byadjusting the allowance account. If a write-off is later recovered, the recovery is credited tofinance costs in profit or loss.

Impairment of Quoted AFS Financial Assets. In the case of equity investments classified as AFSfinancial assets, an objective evidence of impairment would include a significant or prolongeddecline in the fair value of the investments below its cost. “Significant” is to be evaluated againstthe original cost of the investment and “prolonged” against the period in which the fair value hasbeen below its original cost. When there is evidence of impairment, the cumulative loss which ismeasured as the difference between the acquisition cost and the current fair value, less anyimpairment loss on that financial asset previously recognized in OCI under “Unrealized mark-to-market gain (loss) on available-for-sale financial assets” account, is removed from equity andrecognized in profit or loss. Impairment losses on equity investments are not reversed in profit orloss; increases in fair value after impairment are recognized directly in OCI.

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Impairment of Unquoted AFS Financial Assets. If there is objective evidence that an impairmentloss has been incurred in an unquoted equity instrument that is not carried at fair value because itsfair value cannot be reliably measured, or on a derivative asset that is linked to and must be settledby delivery of such an unquoted equity instrument, the amount of loss is measured as thedifference between the asset’s carrying amount and the present value of estimated future cashflows discounted at the current market rate of return for a similar financial asset.

Financial Liabilities

Initial Recognition. Financial liabilities are classified as financial liabilities at FVPL, or as otherfinancial liabilities. The Company determines the classification of its financial liabilities at initialrecognition.

Financial liabilities are recognized initially at fair value and in the case of other financialliabilities, net of directly attributable transaction costs which include the Parent Company’s bondissuance costs, such as, taxes and various fees paid to investment banks, law firms, auditors,regulators, and so on.

The Company does not have financial liabilities at FVPL.


Other Financial Liabilities. After initial recognition, other financial liabilities are subsequentlymeasured at amortized cost using the EIR method.

Gains and losses are recognized in the parent company statement of comprehensive income whenthe liabilities are derecognized as well as through the EIR amortization process. Amortized cost iscalculated by taking into account any discount or premium on acquisition and fees or costs that areintegral part of the EIR. The EIR amortization is included in the parent company statement ofcomprehensive income.

Other financial liabilities include interest-bearing loans and borrowings, bonds payable, accountspayable and other current liabilities (excluding unearned tuition and other school fees, governmentand other statutory liabilities), obligations under finance lease, and other noncurrent liabilities(excluding advance rent and deferred lease liability).

Offsetting of Financial Instruments.Financial assets and liabilities are offset with the net amount reported in the parent companystatement of financial position if, and only if, there is a currently enforceable legal right to offsetthe recognized amounts and there is an intention to settle on a net basis, or to realize the asset andsettle the liability simultaneously. The Company assesses that it has a currently enforceable rightof offset if the right is not contingent on a future event, and is legally enforceable in the normalcourse of business, event of default, and event of insolvency or bankruptcy of the Company andall of the counterparties.

InventoriesInventories are valued at the lower of cost and net realizable value. Cost is determined using theweighted average method. Net realizable value of educational materials is the selling price in theordinary course of business, less estimated costs necessary to make the sale. Net realizable valueof promotional and school materials and supplies is the current replacement cost.

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Prepaid ExpensesPrepaid expenses are carried at cost and are amortized on a straight-line basis over the period ofexpected usage, which is equal to or less than 12 months or within the normal operating cycle.

Creditable Withholding Taxes (CWT). CWT represents the amount of tax withheld bycounterparties from the Company. These are recognized upon collection and are utilized as taxcredits against income tax due as allowed by Philippine taxation laws and regulations. CWT ispresented as part of “Prepaid taxes” under the “Prepaid expenses and other current assets” accountin the parent company statement of financial position. CWT is stated at its estimated netrealizable value.

Property and EquipmentProperty and equipment, except land, are stated at cost less accumulated depreciation,amortization and any impairment in value, excluding the costs of day-to-day servicing. The initialcost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property, plant andequipment to its working condition and location for its intended use. Such cost includes the costof replacing part of such property and equipment when that cost is incurred and the recognitioncriteria are met. Land is stated at cost less any impairment in value.

An item of property and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of theasset (calculated as the difference between the net disposal proceeds and the carrying amount ofthe asset) is included in profit or loss in the year the asset is derecognized.

Depreciation and amortization are computed using the straight-line method over the followingestimated useful lives:

Buildings 20–25 yearsOffice and school equipment 5 yearsOffice furniture and fixtures 5 yearsLeasehold improvements 5 years or terms of the lease agreement,

whichever is shorterTransportation equipment 5 years or terms of the lease agreement,

whichever is shorterComputer equipment and peripherals 3 yearsLibrary holdings 3–5 years

The estimated useful lives and the depreciation and amortization method are reviewed periodicallyto ensure that the periods and depreciation and amortization method are consistent with theexpected pattern of economic benefits from items of property and equipment.

Fully depreciated assets are retained in the accounts until they are no longer in use and no furtherdepreciation and amortization is charged to current operations.

Construction in-progress represents structures under construction and is stated at cost less anyimpairment in value. This includes cost of construction and other direct costs, including anyinterest on borrowed funds during the construction period. Construction in-progress is notdepreciated until the relevant assets are completed and become available for operational use.

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Investment PropertiesInvestment properties include land and buildings held by the Company for capital appreciation andrental purposes. Buildings are carried at cost less accumulated depreciation and any impairment invalue, while land is carried at cost less any impairment in value. The carrying amount includes thecost of constructing a significant portion of an existing investment property if the recognitioncriteria are met; and excludes the costs of day-to-day servicing of an investment property.

Depreciation of buildings is computed on a straight-line basis over 20–25 years. The asset’suseful life and method of depreciation are reviewed and adjusted, if appropriate, at each financialyear-end.

Investment properties are derecognized when either they have been disposed of or when theinvestment property is permanently withdrawn from use and no future economic benefit isexpected from its disposal. Any gains or losses on the retirement or disposal of an investmentproperty are recognized in profit or loss in the year of retirement or disposal.

Transfers are made to investment property when, and only when, there is a change in use,evidenced by ending of owner-occupation or commencement of an operating lease to anotherparty. Transfers are made from investment property when, there is a change in use, evidenced bycommencement of owner-occupation or commencement of development with a view to sell.

For a transfer from investment property to owner-occupied property or inventories, the cost ofproperty for subsequent accounting is its carrying value at the date of change in use. If theproperty occupied by the Company as an owner-occupied property becomes an investmentproperty, the Company accounts for such property in accordance with the policy stated underproperty and equipment up to the date of change in use.

Construction in-progress represents structures under construction and is stated at cost less anyimpairment in value. This includes cost of construction and other direct costs, including anyinterest on borrowed funds during the construction period. Construction in-progress is notdepreciated until the relevant assets are completed and become available for capital appreciationand rental purposes.

Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition, construction orproduction of a qualifying asset. Qualifying assets are assets that necessarily take a substantialperiod of time to get ready for its intended use or sale. To the extent that funds are borrowedspecifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligiblefor capitalization on that asset shall be determined as the actual borrowing costs incurred on thatborrowing during the year less any investment income on the temporary investment of thoseborrowings. To the extent that funds are borrowed generally and used for the purpose of obtaininga qualifying asset, the amount of borrowing costs eligible for capitalization shall be determined byapplying a capitalizable rate to the expenditures on that asset. The capitalization rate shall be theweighted average of the borrowing costs applicable to borrowings that are outstanding during theyear, other than borrowings made specifically for the purpose of obtaining a qualifying asset. Theamount of borrowing costs capitalized during the year shall not exceed the amount of borrowingcosts incurred during that year.

Capitalization of borrowing costs commences when the activities necessary to prepare the asset forintended use are in progress and expenditures and borrowing costs are being incurred. Borrowingcosts are capitalized until the asset is available for their intended use. If the resulting carryingamount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing

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costs include interest charges and other costs incurred in connection with the borrowing of funds,as well as exchange differences arising from foreign currency borrowings used to finance theseprojects, to the extent that they are regarded as an adjustment to interest costs.

All other borrowing costs are expensed as incurred in the year in which they occur.

Investments in Subsidiaries, Associates and Joint VenturesInvestments in subsidiaries, associates and joint ventures are accounted for at cost less anyimpairment in value from the date of acquisition. The Company determines whether it isnecessary to recognize an impairment loss.

Subsidiaries. A subsidiary is an entity in which the Company has control.

The subsidiaries of the Company, which are all incorporated in the Philippines, are as follows:

Effective Percentage of Ownership2017 2016

Subsidiaries Principal Activities Direct Indirect Direct IndirectSTI College Tuguegarao, Inc. (STI Tuguegarao) Educational Institution 100 – 100 –STI College of Kalookan, Inc. (STI Caloocan) (a) Educational Institution 100 – 100 –STI College Batangas, Inc. (STI Batangas) Educational Institution 100 – 100 –STI College Iloilo, Inc. (STI Iloilo) Educational Institution 100 – 100 –STI College Tanauan, Inc. (STI Tanauan) Educational Institution 100 – 100 –STI Lipa, Inc. (STI Lipa) Educational Institution 100 – 100 –STI College Pagadian, Inc. (STI Pagadian) Educational Institution 100 – 100 –STI Dagupan (b) Educational Institution 100 – 100 –STI College Novaliches, Inc. (STI Novaliches) Educational Institution 100 – 100 –STI Taft (b) Educational Institution 100 – 75 –De Los Santos-STI College (c) Educational Institution 52 – 52 –STI College Quezon Avenue, Inc. (STI QA)(d) Educational Institution – 52 – 52iACADEMY(e) Educational Institution – – 100 –STI Diamond College, Inc. (STI Diamond) (e) Educational Institution – – 100 –

(a) A subsidiary through a management contract (see Note 3)(b) Converted advances to equity through issuance of shares (see Note 10)(c) On June 28, 2016, De Los Santos-STI College wrote the CHED advising the latter of the suspension of its operations for school

years 2016-2017 and 2017-2018 as a result of the implementation of the Government’s K to 12 program. In the same letter, DeLos Santos-STI College requested that it be allowed to keep all of its existing permits and licenses for its academic programs. Italso mentioned that the grant of such request would allow De Los Santos-STI College to immediately resume offering itsacademic programs to incoming freshmen students for its planned resumption of operation in SY 2018-2019. These academicprograms are: BS Nursing, BS Radiologic Technology, BS Psychology, BS Physical Therapy, BS Hotel and RestaurantManagement and BS Tourism. CHED, in a letter reply dated July 1, 2016, said that De Los Santos-STI College shall apply againfor initial permits if it intends to offer the said programs in SY 2018-2019. De Los Santos-STI College shall request CHED for areconsideration.

(d) A wholly owned subsidiary of De Los Santos-STI College(e) Ceased to be a subsidiary in September 2016 (see Note 10)

Associates. An associate is an entity over which the Company has significant influence.Significant influence is the power to participate in the financial and operating policy decisions ofthe investee, but not control or joint control over those policies.

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The associates of the Company, which are all incorporated in the Philippines, are as follows:

Effective Percentage of Ownership2017 2016

Associate Principal Activities Direct Indirect Direct IndirectAccent Healthcare, Inc./STI Banawe, Inc.

(STI Accent) (a) Medical and related services 49 – 49 –STI College Alabang, Inc. (STI Alabang) Educational Institution 40 – 40 –Synergia Human Capital Solutions, Inc.

(Synergia) (a)Management Consulting

Services 30 – 30 –STI College Marikina, Inc. (STI Marikina) Educational Institution 24 – 24 –Maestro Holdings, Inc. (Maestro Holdings) (b) Holding Company 20 – 20 –Global Resource for Outsourced Workers,

Inc. (GROW) Recruitment Agency 17 2 17 2STI Holdings (see Note 3) Holding Company 5 – 5 –(a) Dormant entities(b) Formerly known as STI Investments, Inc.

Interests in Joint Ventures. The Company has interests in Philippine Healthcare Educators Inc.(PHEI) and STI-PHNS Outsourcing Corporation (STI-PHNS), both joint ventures. A jointventure is a type of joint arrangement whereby the parties that have joint control of thearrangement have rights to the net assets of the joint venture. Joint control is the contractuallyagreed sharing of control of an arrangement, which exists only when decisions about the relevantactivities require unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to thosenecessary to determine control over subsidiaries.

Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. Following initialrecognition, intangible assets are carried at cost less any accumulated amortization in the case ofintangible assets with finite lives, and any accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assetswith finite lives are amortized over the useful economic life and assessed for impairmentwhenever there is an indication that the intangible asset may be impaired. The amortization periodand the amortization method for an intangible asset with a finite useful life are reviewed at least ateach financial year-end. Changes in the expected useful life or the expected pattern ofconsumption of future economic benefits embodied in the asset is accounted for by changing theamortization period or method, as appropriate, and are treated as changes in accounting estimates.The amortization expense on intangible assets with finite lives is recognized in the parentcompany statement of comprehensive income in the expense category consistent with the functionof the intangible asset.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairmentannually, either individually or at the cash-generating unit (CGU) level. The assessment ofindefinite life is reviewed annually to determine whether the indefinite life continues to besupportable. If not, the change in useful life from indefinite to finite is made on a prospectivebasis.

The Company has assessed the intangible assets as having a finite useful life, which is the shorterof its contractual term or economic life. Amortization is on a straight-line basis over the estimateduseful lives of 3 years.

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Gains or losses arising from derecognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the asset and are recognized inprofit or loss when the asset is derecognized.

Impairment of Nonfinancial AssetsThe carrying values of investments in and advances to subsidiaries, associates and joint ventures,property and equipment, investment properties, intangible assets and advances to suppliers arereviewed for impairment when events or changes in circumstances indicate that the carrying valuemay not be recoverable. When an indicator of impairment exists or when an annual impairmenttesting for an asset is required, the Company makes a formal estimate of recoverable amount.Recoverable amount is the higher of an asset’s (or CGU’s) fair value less costs to sell and its valuein use and is determined for an individual asset, unless the asset does not generate cash inflowsthat are largely independent of those from other assets or groups of assets, in which case therecoverable amount is assessed as part of the CGU to which it belongs. Where the carryingamount of an asset (or CGU) exceeds its recoverable amount, the asset (or CGU) is consideredimpaired and is written down to its recoverable amount. In assessing value in use, the estimatedfuture cash flows are discounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific to the asset (orCGU). In determining fair value less costs to sell, an appropriate valuation model is used. Thesecalculations are corroborated by valuation multiples, quoted share prices for publicly tradedsecurities or other available fair value indicators.

Impairment losses are recognized in the parent company statement of comprehensive income inthose expense categories consistent with the function of the impaired asset, except for assetspreviously revalued where the revaluation was taken to equity. In this case, the impairment is alsorecognized in equity up to the amount of any previous revaluation.

For nonfinancial assets, excluding goodwill, an assessment is made at each reporting date asto whether there is any indication that previously recognized impairment losses may no longerexist or may have decreased. If such indication exists, the recoverable amount is estimated. Apreviously recognized impairment loss is reversed only if there has been a change in the estimatesused to determine the asset’s recoverable amount since the last impairment loss was recognized.If that is the case, the carrying amount of the asset is increased to its recoverable amount. Thatincreased amount cannot exceed the carrying amount that would have been determined, net ofdepreciation and amortization (in the case of property and equipment, investment properties andintangible assets), had no impairment loss been recognized for the asset in prior years. Suchreversal is recognized in profit or loss unless the asset is carried at a revalued amount, in whichcase the reversal is treated as a revaluation increase. After such a reversal, the depreciation andamortization expense is adjusted in future years to allocate the asset’s revised carrying amount,less any residual value, on a systematic basis over its remaining life.

Goodwill. Goodwill is reviewed for impairment, annually or more frequently if events or changesin circumstances indicate that the carrying value may be impaired. Impairment is determined byassessing the recoverable amount of the CGUs, to which the goodwill relates. Where therecoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU(or group of CGUs) to which the goodwill has been allocated, an impairment loss is recognized inthe parent company statement of comprehensive income. Impairment losses relating to goodwillcannot be reversed for subsequent increases in its recoverable amount in future periods. TheCompany performs its annual impairment test of goodwill as at March 31 of each year.

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Unearned Tuition and Other School FeesFees pertaining to the school year commencing after the financial reporting date are recordedunder “Unearned tuition and other school fees” in the parent company statement of financialposition. Unearned tuition and other school fees are amortized over the related school term.

ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits willbe required to settle the obligation and a reliable estimate can be made of the amount of theobligation. When the Company expects a provision to be reimbursed, such as under an insurancecontract, the reimbursement is recognized as a separate asset but only when the reimbursement isvirtually certain. The expense relating to any provision is presented in profit or loss, net of anyreimbursement. If the effect of the time value of money is material, provisions are determined bydiscounting the expected future cash flow at a pre-tax rate that reflects current market assessmentsof the time value of money and, where appropriate, the risks specific to the liability. Whendiscounting is used, the increase in the provision due to the passage of time is recognized as“Interest expense”.

Capital Stock and Additional Paid-in CapitalCommon stock is measured at par value for all shares issued. Incremental costs incurred directlyattributable to the issuance of new shares are shown in equity as a deduction from proceeds, net oftax. Proceeds and/or fair value of consideration received in excess of par value are recognized asadditional paid-in capital.

Retained Earnings and Dividend on Common StockThe amount included in retained earnings include the Company’s accumulated earnings andreduced by dividends on capital stocks. Dividends on capital stocks are recognized as liability anddeducted from equity when approved by the BOD of the Company. Dividends that are approvedafter the financial reporting date are dealt with as an event after the financial reporting period.

Earnings per Share (EPS)EPS is computed by dividing net income for the year by the weighted average number of sharesissued and outstanding after giving retroactive effect to any stock split and stock dividenddeclaration, if any.

Diluted EPS is calculated by dividing the net income by the weighted average number of commonshares outstanding during the year adjusted for the effects of any dilutive convertible commonshares.

RevenueRevenue is recognized to the extent that it is probable that the economic benefits will flow to theCompany and the amount of the revenue can be measured reliably. The Company assesseswhether it is acting as a principal or an agent in every revenue arrangements. It is acting as aprincipal when it has the primary responsibility for providing the goods or services. TheCompany also acts as a principal when it has the discretion in establishing the prices and bearsinventory and credit risk. Revenue is measured at the fair value of the consideration received,excluding discounts, rebates and value-added tax (VAT).

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The following specific recognition criteria must also be met before revenue is recognized:

Tuition and Other School Fees. Revenue from tuition and other school fees is recognized asincome over the corresponding school term to which they pertain. Fees received pertaining to theschool year commencing after the financial reporting date are recorded under the “Unearnedtuition and other school fees” account in the parent company statement of financial position.Unearned tuition and other school fees are amortized over the related school term.

Educational Services. Revenue is recognized as services are rendered.

Royalty Fees. Revenue from royalty fees is recognized on an accrual basis in accordance with theterms of the licensing agreements.

Management Fees. Revenue is recognized when services are rendered (included as part of the“Other revenues” account in the parent company statement of comprehensive income).

Sale of Educational Materials and Supplies. Revenue is recognized at the time of sale whensignificant risks and rewards of ownership have been transferred.

Rental Income. Rental income is recognized on a straight-line basis over the term of the leaseagreement.

Dividend Income. Revenue is recognized when the Company’s right to receive the payment isestablished.

Interest Income. Interest income is recognized as the interest accrues considering the effectiveyield on the asset.

Costs and ExpensesCosts and expenses are decreases in economic benefits during the accounting period in the form ofoutflows or decrease of assets or incurrence of liabilities that result in decreases in equity, otherthan those relating to distributions to equity participants. Costs and expenses are recognized inprofit or loss in the year these are incurred.

Pension CostsThe Company has a funded, noncontributory defined benefit pension plan, administered by theBoard of Trustees, covering substantially all of its regular and permanent employees.

The net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets (if any),adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceilingis the present value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

Defined benefit costs comprise the following:

ƒ Service costƒ Net interest on the net defined benefit liability or assetƒ Remeasurements of net defined benefit liability or asset

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Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically byindependent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income inprofit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in OCI in the period in which they arise. Remeasurements are not reclassified toprofit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Company, nor can they be paiddirectly to the Company. Fair value of plan assets is based on market price information. When nomarket price is available, the fair value of plan assets is estimated by discounting expected futurecash flows using a discount rate that reflects both the risk associated with the plan assets and thematurity or expected disposal date of those assets (or, if they have no maturity, the expectedperiod until the settlement of the related obligations).

The Company’s right to be reimbursed of some or all of the expenditure required to settle adefined benefit obligation is recognized as a separate asset at fair value when and only whenreimbursement is virtually certain.

LeasesThe determination whether an arrangement is, or contains, a lease is based on the substance of thearrangement at the inception date of whether the fulfillment of the arrangement is dependent onthe use of a specific asset or the arrangement conveys a right to use the asset.

Company as a Lessee. Finance leases, which transfer to the Company substantially all the risksand benefits incidental to ownership of the leased item, are capitalized at the inception of the leaseat the fair value of the leased property or, if lower, at the present value of the minimum leasepayments. Lease payments are apportioned between the finance charges and reduction of the leaseliability so as to achieve a constant rate of interest on the remaining balance of the liability.Finance charges are charged directly against profit or loss.

Capitalized leased assets are depreciated over the useful life of the asset. However, if there is noreasonable certainty that the Company will obtain ownership by the end of the lease term, the assetis depreciated over the shorter of the estimated useful life of the asset and the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognized as expense in profit orloss on a straight-line basis over the lease term.

Company as a Lessor. Leases where the Company retains substantially all the risks and benefitsof ownership of the asset are classified as operating leases. Initial direct costs incurred innegotiating an operating lease are added to the carrying amount of the leased asset and recognizedover the lease term on the same basis as rental income.

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Taxes

Current Tax. Current tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authority. The tax rates and tax lawsused to compute the amount are those that are enacted or substantially enacted at the financialreporting date.

Deferred Tax. Deferred tax is provided using the liability method on temporary differences at thefinancial reporting date between the tax bases of assets and liabilities and their carrying amountsfor financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporarydifferences, except:

ƒ when the deferred tax liability arises from the initial recognition of goodwill or of an asset orliability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting income nor taxable income or loss;

ƒ in respect of taxable temporary differences associated with investments in subsidiaries andassociates and interests in joint ventures, when the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differences will not reversein the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences and carryforwardbenefit of net operating loss carryover (NOLCO), and to the extent that it is probable that taxableincome will be available against which the deductible temporary differences and carryforwardbenefits of NOLCO can be utilized, except:

ƒ when the deferred tax asset relating to the deductible temporary difference arises from theinitial recognition of an asset or liability in a transaction that is not a business combinationand, at the time of the transaction, affects neither the accounting income nor taxable income orloss;

ƒ in respect of deductible temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, deferred tax assets are recognized only to the extentthat it is probable that the temporary differences will reverse in the foreseeable future andtaxable income will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each financial reporting date andreduced to the extent that it is no longer probable that sufficient future taxable profit will beavailable to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred taxassets are reassessed at each financial reporting date and are recognized to the extent that it hasbecome probable that future taxable income will allow the deferred tax assets to be recovered.

Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected toapply in the year when the asset is realized or the liability is settled, based on tax rates and taxlaws that have been enacted or substantially enacted at the financial reporting date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.Deferred tax items are recognized in correlation to the underlying transactions either in OCI ordirectly in equity.

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Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists tooffset current tax assets against current tax liabilities and the deferred taxes relate to the sametaxable entity and the same taxation authority.

VAT. Revenue, expenses and assets are recognized net of the amount of VAT, except:

ƒ when the VAT incurred on a purchase of assets or services is not recoverable from thetaxation authority, in which case the VAT is recognized as part of the cost of acquisition of theasset or as part of the expense item as applicable; or

ƒ receivables and payables that are stated with the amount of VAT included.

The net amount of VAT recoverable from, or payable to, the taxation authority is included as partof the “Prepaid expenses and other current assets” or “Accounts payable and other currentliabilities” accounts in the parent company statement of financial position.

ContingenciesContingent liabilities are not recognized in the parent company financial statements. These aredisclosed in the notes to the parent company financial statements unless the possibility of anoutflow of resources embodying economic benefits is remote. A contingent asset is notrecognized in the parent company financial statements but disclosed in the notes to the parentcompany financial statements when an inflow of economic benefits is probable.

Events after the Reporting PeriodPost year-end events that provide additional information about the Company’s financial position atthe financial reporting date (adjusting events) are reflected in the parent company financialstatements. Post year-end events that are not adjusting events are disclosed in the notes to theparent company financial statements when material.

Segment ReportingA segment is a distinguishable component of the Company that is engaged either in providingproducts or services within a particular economic environment which is subject to risks andrewards that are different from those of other segments. Such business segment is the base uponwhich the Company reports its operating segment information. The Company presents segmentinformation in its consolidated financial statements.

For management purposes, the Group is organized into business units based on the geographicallocation of the students and assets, and has five reportable segments, namely, Metro Manila,Northern Luzon, Southern Luzon, Visayas and Mindanao.

Management monitors operating results of its business segments separately for the purpose ofmaking decisions about resource allocation and performance assessment. Segment performance isevaluated based on operating profit or loss and is measured consistently with profit and loss in thefinancial statements.

3. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the parent company financial statements requires management to makejudgments, estimates and assumptions that affect the amounts reported in the parent companyfinancial statements and related notes. The estimates used are based upon management’sevaluation of relevant facts and circumstances as at the date of the parent company financial

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statements, giving due consideration to materiality. Actual results could differ from suchestimates.

The Company believes the following represents a summary of these significant judgments,estimates and assumptions and related impact and associated risks in its parent company financialstatements.

JudgmentsIn the process of applying the Company’s accounting policies, management has made thefollowing judgments, apart from those involving estimations, which have the most significanteffect on the amounts recognized in the parent company financial statements.

Determination of Control Arising from a Management Contract. The Company has managementcontracts with STI Diamond and STI Caloocan. Management has concluded that the Company, insubstance, has the power to direct their relevant activities and has the means to obtain majority ofthe benefits of STI Diamond and STI Caloocan, both non-stock corporations, through themanagement contract. Management has assessed that it has control of STI Diamond and STICaloocan and accordingly, classifies the two entities as subsidiaries effective from the date controlwas obtained.

In August 2016, the management contract between the Company and STI Diamond wasterminated. Any rights to the residual interest in STI Diamond were transferred to an entity outsideof the STI Group resulting in the deconsolidation of STI Diamond (see Note 16).

Significant Influence on an Associate. The Company has an equity interest of 5.05% in STIHoldings. Management has assessed that it has significant influence by virtue of its poolingagreement with other stockholders of STI Holdings owning 31.12% of the voting stock of STIHoldings resulting in a total voting power of 36.19%. Under this agreement, the Company and thestockholder will pool their shares in STI Holdings and vote as a block in all matters that wouldrequire a vote of the shareholders and the BOD. Accordingly, the Company has the power toparticipate in the financial and operating policy decisions of STI Holdings and accounts for thesaid investment as an associate.

Contingencies. The Company is currently a party in a number of cases involving claims anddisputes related to collection of receivables and labor cases. The Company’s estimate of theprobable costs for the resolution of these claims has been developed in consultation with outsidelegal counsels handling defense in these matters and is based upon an analysis of potential results.Management and its legal counsels believe that the Company has substantial legal and factualbases for its position and are of the opinion that losses arising from these legal actions, if any, willnot have a material adverse impact on the parent company financial statements. It is possible,however, that future results of operations could be materially affected by changes in the estimatesor in the effectiveness of strategies relating to these proceedings (see Note 29).

Estimates and AssumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at thefinancial reporting date that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are discussed below.

Estimating Allowance for Impairment Loss on Loans and Receivables. The Company reviews itsreceivables and advances to subsidiaries, associates and joint ventures and other related parties ateach reporting date to assess whether an allowance for impairment loss should be recorded in theparent company statement of financial position. In particular, judgment by management is

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required in the estimation of the amount and timing of future cash flows when determining thelevel of allowance required. Such estimates are based on assumptions about a number of factorsand actual results may differ, resulting in future changes to the allowance.

In addition to specific allowance against individually significant receivables and advances, theCompany also makes a collective impairment allowance against exposures which, although notspecifically identified as requiring a specific allowance, have a greater risk of default than whenoriginally granted. This collective allowance is based on any deterioration in the internal rating ofthe receivables and advances since it was granted or acquired.

Receivables, net of allowance for doubtful accounts, amounted to P=301.2 million andP=196.1 million as at March 31, 2017 and 2016, respectively. Provision for impairment loss onreceivables recognized in the parent company financial statements amounted to ₱45.6 million and₱55.7 million in 2017 and 2016, respectively (see Note 5).

Estimating Useful Lives of Nonfinancial Assets. Management determines the estimated usefullives and the related depreciation and amortization charges for its property and equipment,investment properties, excluding land, and intangible assets based on the period over which theproperty and equipment, investment properties and intangible assets are expected to provideeconomic benefits. Management’s estimation of the useful lives of property and equipment,investment properties and intangible assets is based on a collective assessment of industrypractice, internal technical evaluation and experience with similar assets while for intangibleassets with a finite life, estimated useful life is based on the economic useful benefit of theintangible assets. These estimations are reviewed periodically and could change significantly dueto physical wear and tear, technical or commercial obsolescence and legal or other limits on theuse of the assets. A reduction in the estimated useful lives of property and equipment, investmentproperties and intangible assets would increase recorded expenses and decrease noncurrent assets.

There were no changes in the estimated useful lives of the Company’s property and equipment,investment properties and intangible assets in 2017 and 2016. The carrying values of nonfinancialassets subject to depreciation and amortization are as follows:

2017 2016Property and equipment (see Note 8) P=2,415,105,246 P=2,126,982,189Investment properties (see Note 9) 1,271,542,915 1,331,655,886Intangible assets (see Note 12) 22,395,838 30,821,915

Impairment of Nonfinancial Assets. PFRS requires nonfinancial assets to be tested for impairmentwhen certain impairment indicators are present, irrespective of whether there are any indicationsof impairment. Nonfinancial assets include property and equipment, investment properties,investment in and advances to associates and joint ventures and intangible assets and othernoncurrent assets.

Management is required to make estimates and assumptions to determine the future cash flows tobe generated from the continued use and ultimate disposition of these assets in order to determinethe value of these assets. While the Group believes that the assumptions used are reasonable andappropriate, these estimates and assumptions can materially affect the parent company financialstatements. Future adverse events may cause management to conclude that the affected assets areimpaired and may have a material impact on the financial condition and results of operations ofthe Group. The carrying value of property and equipment, investment properties, investment inand advances to subsidiaries, associates and joint ventures and intangible assets and other

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noncurrent assets are disclosed in Notes 8, 9, 10 and 12, respectively. There were no impairmentloss in 2017 and 2016.

Goodwill. Acquisition method requires extensive use of accounting estimates and judgments toallocate the purchase price to the fair market values of the acquiree’s identifiable assets, liabilitiesand contingent liabilities at the acquisition date. It also requires the acquirer to recognize anygoodwill as the excess of the acquisition cost over the fair value of the acquiree’s identifiableassets, liabilities and contingent liabilities. The Company’s business acquisitions have resulted ingoodwill which is subject to an annual impairment testing. This requires an estimation of thevalue in use of the CGUs to which the goodwill is allocated. Estimating the value in use requiresthe Company to make an estimate of the expected future cash flows from the CGU and also tochoose a suitable discount rate in order to calculate the present value of those cash flows.

The recoverable amounts of CGUs have been determined based on value in use calculations usingcash flow projections covering a five-year period based on long-range plans approved bymanagement.

Management used an appropriate discount rate for cash flows equal to the prevailing rates ofreturn for a Company having substantially the same risks and characteristics. Management usedthe weighted average cost of capital wherein the source of the costs of equity and debt financingare weighted. The weighted average cost of capital is the overall required return on the Company.A discount rate of 10.0% was used as at March 31, 2017 and 2016. The Company’s growth ratesin extrapolating its cash flows beyond the period covered by its recent budgets ranged from 5.0%to 10.0%.

Other assumptions used in the calculations for impairment testing of goodwill are projection ratesof new students, retention rates of old students, tuition fee increase rates and inflation rates.Current and historical transactions have been used as indicators of future transactions.

Impairment testing as at March 31, 2017 and 2016 showed that the CGUs recoverable amountswere greater than their carrying amounts, and there were no events during the years endedMarch 31, 2017 and 2016 that would eliminate such difference, hence, no provision forimpairment in value was recognized in 2017 and 2016. Goodwill, net of allowance forimpairment loss, amounted to P=74.8 million as at March 31, 2017 and 2016 (see Note 12).

Pension Cost. The determination of the obligation and cost for pension benefits is dependent onthe selection of certain assumptions provided by the Group to its actuaries in calculating suchamounts. Those assumptions were described in Note 25 and included among others, discount rateand future salary increases. In accordance with Revised PAS 19, Employee Benefits, actualresults that differ from the Group’s assumptions are included in OCI and are not reclassified toprofit or loss in subsequent periods. While it is believed that the Group’s assumptions arereasonable and appropriate, significant differences in actual experience or significant changes inassumptions may materially affect the Group’s pension and other pension obligations.

The carrying values of pension assets and pension liabilities as at March 31, 2017 and 2016 aredisclosed in Note 23 to the parent company financial statements.

Deferred Tax Assets. Deferred tax assets are recognized for unused tax losses to the extent that itis probable that taxable profit will be available against which the losses can be utilized. Significantmanagement judgement is required to determine the amount of deferred tax assets that can berecognized, based upon the likely timing and the level of future taxable profits together with futuretax planning strategies.

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Deferred tax assets recognized as at March 31, 2017 and 2016 are disclosed in Note 25 to theparent company financial statements.

4. Cash and Cash Equivalents

This account consists of:

2017 2016Cash on hand and in banks P=2,056,435,562 P=320,720,903Cash equivalents 700,204,861 –

P=2,756,640,423 P=320,720,903

Cash in banks and cash equivalents earn interest at their respective deposit and investment rates.

Interest earned from cash in banks and cash equivalents amounted to P=0.9 million andP=2.0 million in 2017 and 2016, respectively (see Note 18).

5. Receivables


2017 2016Tuition and other school fees P=198,305,068 P=146,707,659Educational services (see Note 26) 78,891,320 43,636,745Rent and other related receivables (see Note 26) 41,014,358 26,463,366Advances to officers and employees (see Note 26) 17,208,914 17,514,507Current portion of advances to associates, joint

ventures and other related parties (see Note 26) 143,571 252,767Others 22,431,863 21,927,198

357,995,094 256,502,242Less allowance for doubtful accounts (56,818,837) (60,430,627)

P=301,176,257 P=196,071,615

The terms and conditions of the receivables are as follows:

a. Tuition and other school fees include receivables from students and DepED. Thesereceivables are noninterest-bearing and are normally collected on or before the date ofmajor examinations while receivables from DepEd are expected to be collected within theyear.

b. Educational services receivables pertain to receivables from franchisees, subsidiaries andother related parties arising from educational services, royalty fees and other charges.These receivables are generally noninterest-bearing and are normally collected within 30days. Interest is charged on past due accounts.

Interest earned from past due accounts amounted to P=1.5 million and P=1.4 million in 2017and 2016, respectively (see Note 18).

c. Rent and other related receivables are normally collected within the next financial year.

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d. Advances to officers and employees are normally liquidated within one month.

e. For terms and conditions relating to advances to associates, joint ventures and otherrelated parties, refer to Note 26.

f. Other receivables are expected to be collected within the next financial year.

The movements in the allowance for doubtful accounts as a result of individual and collectiveassessments are as follows:

2017Tuition and

Other SchoolFees Others Total

Balance at beginning of year P=49,929,080 P=10,501,547 P=60,430,627Provisions (see Note 21) 50,821,343 (5,254,103) 45,567,240Write-off (47,785,548) (1,393,482) (49,179,030)Balance at end of year P=52,964,875 P=3,853,962 P=56,818,837

2016Tuition and

Other SchoolFees Others Total

Balance at beginning of year P=48,744,256 P=7,925,702 P=56,669,958Provisions (see Note 21) 53,117,493 2,575,845 55,693,338Write-off (51,932,669) – (51,932,669)Balance at end of year P=49,929,080 P=10,501,547 P=60,430,627

As at March 31, 2017 and 2016, allowance for doubtful accounts amounting to P=3.9 million andP=10.5 million, respectively, relates to individually significant accounts under “Others” that wereassessed as impaired. The remaining balance of P=53.0 million and P=49.9 million as at March 31,2017 and 2016, respectively, relates to accounts under “Tuition and Other School Fees” that werecollectively assessed as impaired.

6. Inventories


2017 2016At net realizable value:

Educational materials P=87,318,018 P=22,335,297Promotional materials 6,922,595 4,463,651School materials and supplies 1,868,713 943,368

P=96,109,326 P=27,742,316

The cost of inventories amounted to P=106.6 million and P=38.2 million as at March 31, 2017 and2016, respectively. Allowance for inventory obsolescence amounted to P=10.5 million as atMarch 31, 2017 and 2016. No provision for inventory obsolescence resulting from excess of costover net realizable value of inventories was recognized in 2017 and 2016.

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Inventories charged to cost of educational materials and supplies sold amounted to P=112.3 millionand P=52.0 million in 2017 and 2016, respectively (see Note 20).

7. Prepaid Expenses and Other Current Assets


2017 2016Prepaid taxes P=84,012,107 P=43,066,148Prepaid rent 7,887,279 5,427,088Software maintenance cost 3,017,418 2,103,097Others 2,802,965 1,022,733

P=97,719,769 P=51,619,066

Prepaid taxes represent input VAT, prepaid business and real property taxes. Most of the inputVAT arose from the acquisition of properties in EDSA, Pasay City which will be the site of thenew STI Academic Center Pasay- EDSA (see Note 8). Prepaid business and real property taxeswill be amortized within the year.

Prepaid rent represents advance rent paid for the lease of land and building spaces, which shall beapplied to the monthly rental in accordance with the terms of the lease agreements.

Software maintenance cost represents support and maintenance charges for the Company’saccounting and enrollment systems which are amortized within one year from date of contract.

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8. Property and Equipment

The rollforward analyses of this account follows:

2017

Land Buildings

Officeand School

Equipment

OfficeFurniture

and FixturesLeasehold

Improvements

Transportation Equipment(see Note 24)

Computer Equipment

and Peripherals

LibraryHoldings

Constructionin-Progress Total

Cost, Net of AccumulatedDepreciation and Amortization

Balance at beginning of year ₱1,127,293,383 ₱1,870,002,616 ₱107,542,270 ₱66,889,399 ₱27,605,768 ₱11,917,359 ₱28,389,475 ₱14,635,302 ₱161,260,097 ₱3,415,535,669Additions (see Note 32) 552,362,186 243,794,463 39,787,039 22,974,030 5,511,415 5,073,595 28,441,343 3,961,774 7,348,180 909,254,025Disposal – – (75,257) (9,680) – (132,300) – – – (217,237)Reclassification – 170,903,139 – – (9,782,954) – – – (161,120,185) –Depreciation and amortization (see Notes 19 and 21) – (110,431,567) (43,520,668) (24,644,489) (7,417,302) (6,904,646) (23,348,609) (6,056,269) – (222,323,550)Balance at end of year ₱1,679,655,569 ₱2,174,268,651 ₱103,733,384 ₱65,209,260 ₱15,916,927 ₱ 9,954,008 ₱33,482,209 ₱12,540,807 ₱ 7,488,092 ₱4,102,248,907

At March 31, 2017Cost ₱1,679,655,569 ₱2,699,328,966 ₱394,238,468 ₱217,717,388 ₱193,195,870 ₱54,520,132 ₱341,528,998 ₱86,483,003 ₱7,488,092 ₱5,674,156,486Accumulated depreciation and

amortization – 525,060,315 290,505,084 152,508,128 177,278,943 44,566,124 308,046,789 73,942,196 – 1,571,907,579Net book value ₱1,679,655,569 ₱2,174,268,651 ₱103,733,384 ₱65,209,260 ₱15,916,927 ₱9,954,008 ₱33,482,209 ₱12,540,807 ₱7,488,092 ₱4,102,248,907

The cost of fully depreciated property and equipment still used by the Company as at March 31, 2017 amounted to P=697.6 million.

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2016

Land Buildings

Officeand School Equipment

OfficeFurniture


Improvements

Transportation Equipment

(see Note 24)

Computer Equipment

and Peripherals

LibraryHoldings


Cost, Net of AccumulatedDepreciation and Amortization

Balance at beginning of year ₱1,127,293,383 ₱1,902,661,083 ₱105,188,849 ₱77,750,539 ₱21,812,131 ₱19,139,132 ₱32,402,163 ₱18,102,446 ₱35,506,985 ₱3,339,856,711Additions (see Note 32) – 27,600,611 44,685,886 11,190,012 10,794,752 1,606,800 16,240,713 3,474,454 167,465,287 283,058,515Disposal – – – – – – (16,125) – – (16,125)Reclassification – 36,475,559 – – 5,236,616 – – – (41,712,175) –Depreciation and amortization (see Notes 19 and 21) – (96,734,637) (42,332,465) (22,051,152) (10,237,731) (8,828,573) (20,237,276) (6,941,598) – (207,363,432)Balance at end of year ₱1,127,293,383 ₱1,870,002,616 ₱107,542,270 ₱66,889,399 ₱27,605,768 ₱11,917,359 ₱28,389,475 ₱14,635,302 ₱161,260,097 ₱3,415,535,669



The cost of fully depreciated property and equipment still used by the Company as at March 31, 2016 amounted to ₱633.5 million.

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Additions

Acquisitions. In January 2017, STI ESG purchased three parcels of land in P. Celle corner EDSA,Pasay City with a combined land area of 3,911 square meters for a total cost of ₱552.4 million. Thiswill be the site of the nine-storey STI Academic Center Pasay-EDSA which is expected toaccommodate up to 12,400 senior high school and college students.

Property and Equipment under Construction. As at March 31, 2017, the construction in-progressaccount includes costs incurred for the construction of classrooms and faculty rooms in STIBatangas and the renovation works in STI Novaliches. The related contract costs amounted to₱38.8 million, inclusive of materials, cost of labor and overhead and all other costs necessary forthe completion of the projects. The projects are expected to be completed in July 2017.

As at March 31, 2016, the construction in-progress account includes costs incurred for theconstruction of the STI Las Piñas campus. The related contract costs amounted to ₱497.9 million,inclusive of materials, cost of labor, overhead, equipment, furniture and fixtures and all other costsnecessary for the completion of the project. The construction was completed in July 2016.

Capitalized Borrowing Costs. Total borrowing costs capitalized as part of property and equipmentamounted to nil and ₱0.5 million in 2017 and 2016, respectively. The average interestcapitalization rate is at nil and 4.75% in 2017 and 2016, respectively, which is the effective rate ofthe general borrowings.

Finance LeasesCertain transportation equipment were acquired under finance lease agreements. The net bookvalue of these equipment amounted to ₱10.0 million and ₱11.9 million as at March 31, 2017 and2016, respectively (see Note 24).

CollateralsTransportation equipment, which were acquired under finance lease, are pledged as security forthe related finance lease liabilities as at March 31, 2017 and 2016.

9. Investment Properties


2017

Land BuildingsConstruction

in-Progress TotalCost: Balance at beginning of year ₱427,379,537 ₱1,524,835,314 ₱– ₱1,952,214,851 Additions (see Note 32) – 6,314,278 22,926,089 29,240,367 Balance at end of year 427,379,537 1,531,149,592 22,926,089 1,981,455,218Accumulated depreciation: Balance at beginning of year – 193,179,428 – 193,179,428 Depreciation (see Note 21) – 66,427,249 – 66,427,249 Balance at end of year – 259,606,677 – 259,606,677Net book value ₱427,379,537 ₱1,271,542,915 ₱22,926,089 ₱1,721,848,541

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2016

Land BuildingsConstruction

in-Progress TotalCost: Balance at beginning of year ₱427,379,537 ₱1,508,702,353 ₱7,917,279 ₱1,943,999,169 Additions (see Note 32) – 8,215,682 – 8,215,682 Reclassifications – 7,917,279 (7,917,279) – Balance at end of year 427,379,537 1,524,835,314 – 1,952,214,851Accumulated depreciation: Balance at beginning of year – 127,660,948 – 127,660,948 Depreciation (see Note 21) – 65,518,480 – 65,518,480 Balance at end of year – 193,179,428 – 193,179,428Net book value ₱427,379,537 ₱1,331,655,886 ₱– ₱1,759,035,423

Capitalized Borrowing Costs. Total borrowing costs capitalized as part of investment propertyamounted to nil and ₱0.2 million as at March 31, 2017 and 2016, respectively. The averageinterest capitalization rate is at 4.75% which is the effective rate of the general borrowing.

The fair values of investment properties were determined by an independent professionallyqualified appraiser. The fair value represents the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between market participants at themeasurement date.

LandLevel 3 fair value of land has been derived using the sales comparison approach. The salescomparison approach is a comparative approach to value that considers the sales of similar orsubstitute properties and related market data and establishes a value estimate by process involvingcomparison. Listings and offerings may also be considered. Sales prices of comparable land inclose proximity (external factor) are adjusted for differences in key attributes (internal factors)such as location and size.

The following table shows the valuation technique used in measuring the fair value of the land, aswell as the significant unobservable inputs used:

Fair value as at March 31, 2017 ₱891,658,400Valuation technique Sales comparison approachUnobservable input Net price per square meterRelationship of unobservable inputs to

fair valueThe higher the price per square

meter, the higher the fair value

The highest and best use of the land is commercial utility.

BuildingsLevel 3 fair values of buildings have also been derived using the sales comparison approach.

The following table shows the valuation technique used in measuring the fair value of thebuilding, as well as the significant unobservable inputs used:

Fair value as at March 31, 2017 ₱1,902,846,300Valuation technique Sales comparison approachUnobservable input Net price per square meterRelationship of unobservable inputs to

fair valueThe higher the price per square

meter, the higher the fair value

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The highest and best use of the buildings is commercial utility.

RentalRental income earned from investment properties amounted to ₱179.9 million and ₱129.6 millionin 2017 and 2016, respectively (see Note 24). Direct operating expenses, including repairs andmaintenance, arising from investment properties amounted to ₱2.7 million and ₱2.9 million in2017 and 2016, respectively.

10. Investments in and Advances to Subsidiaries, Associates and Joint Ventures

The details and movements in this account follow:

2017 2016Investments at cost

Balance at beginning of year ₱1,025,389,869 ₱928,026,668Acquisitions 48,981,700 97,363,201Disposal (101,909,416) –Cancellation of subscription to Maestro Holdings (17,499,769) –Balance at end of year 954,962,384 1,025,389,869Less allowance for impairment loss 20,703,031 20,112,500

934,259,353 1,005,277,369Deposit for future stock subscription

(see Note 26) – 48,981,700Advances (see Note 26) 107,887,920 87,884,897Less allowance for impairment loss 51,519,095 49,875,251

56,368,825 38,009,646₱990,628,178 ₱1,092,268,715

Movements in the allowance for impairment in value of investments and advances are as follows:

2017 2016Balance at beginning of year ₱69,987,751 ₱69,468,331Provision for impairment (see Note 21) 2,234,375 519,420Balance at end of year ₱72,222,126 ₱69,987,751

The subsidiaries, associates and joint ventures of the Company are all incorporated in thePhilippines.

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The carrying values of the Company’s investments in, advances to subsidiaries, associates andjoint ventures and deposit for future stock subscription are as follows:

2017 2016Subsidiaries

STI Caloocan ₱67,862,831 ₱67,862,831STI Taft 54,075,450 54,230,438STI Batangas 48,574,947 31,429,198STI Dagupan 27,772,503 27,898,260STI Novaliches 30,467,390 25,467,390STI Pagadian 25,014,583 22,592,778De Los Santos-STI College 14,390,000 14,390,000STI QA 14,251,548 14,241,948STI Iloilo 11,444,083 11,166,529STI Tuguegarao 6,150,743 5,806,371STI Lipa 5,618,156 5,117,690STI Tanauan 1,000,000 1,025,000STI Diamond – 7,081,591iACADEMY – 100,000,000

AssociatesSTI Holdings 498,142,921 500,009,337Maestro Holdings 174,075,126 191,570,926STI Accent 37,399,647 35,755,803GROW 20,815,023 20,815,023STI Alabang 14,125,003 14,125,003Synergia 637,500 637,500STI Marikina 432,850 432,850

Joint VenturesSTI-PHNS 5,600,000 5,600,000PHEI 5,000,000 5,000,000

1,062,850,304 1,162,256,466Allowance for impairment loss 72,222,126 69,987,751

₱990,628,178 ₱1,092,268,715

Information about and major transactions of significant subsidiaries, associates and joint venturesare discussed below:

Subsidiaries

iACADEMYIn May 2014, the Company subscribed to an additional 50.0 million shares in iACADEMY atP=1 par or P=50.0 million. On July 11, 2016, the BOD of iACADEMY approved the amendment ofits Articles of Incorporation to increase its authorized capital stock from P=100.0 million toP=500.0 million.

On September 27, 2016, the Company entered into a deed of sale with STI Holdings wherein theCompany sells, assigns, transfer and delivers in full its absolute title over the shares ofiACADEMY. The difference between the consideration of P=113.5 million and the carrying valueof STI ESG’s investment in iACADEMY of P=100.0 million, or equivalent to P=13.5 million, isrecognized in the 2017 parent company statement of comprehensive income.

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De Los Santos-STI CollegeIn 2015, the Company provided an allowance for impairment loss on its investment in De LosSantos-STI College amounting to P=14.4 million, since the Company believes that it would nolonger be able to recover its investment due to the recurring losses incurred by De Los Santos-STICollege.

On June 28, 2016, De Los Santos- STI College wrote the CHED advising the latter of thesuspension of its operations for school years 2016-2017 and 2017-2018 as a result of theimplementation of the Government’s K to 12 program. In the same letter, De Los Santos- STICollege requested that it be allowed to keep all of its existing permits and licenses for its academicprograms. It also mentioned that the grant of such request would allow De Los Santos-STICollege to immediately resume offering its academic programs to incoming freshmen students forits planned resumption of operation in SY 2018-2019. 217These academic programs are: BSNursing, BS Radiologic Technology, BS Psychology, BS Physical Therapy, BS Hotel andRestaurant Management and BS Tourism. CHED, in a letter reply dated July 1, 2016, said thatDe Los Santos-STI College shall apply again for initial permits if it intends to offer the saidprograms in SY 2018-2019. De Los Santos-STI College shall request CHED for a reconsideration.

STI TaftOn December 1, 2015, the BOD of STI Taft approved the application for an increase in authorizedcapital stock from 5,000 shares with P=100 par value per share to 750,000 shares with P=100 parvalue per share. On the same date, the BOD of STI Taft approved the conversion of STI Taft’sadvances from STI ESG amounting to P=49.0 million to deposit for future stock subscriptions. OnApril 4, 2016, the SEC approved STI Taft’s increase in authorized capital stock to P=75.0 million.Consequently, the deposit for future stock subscriptions was reclassified as part of the investmentcost. As at March 31, 2017, STI Taft became a 99.9%-owned subsidiary of STI ESG.

STI DagupanOn February 27, 2015, the BOD of STI Dagupan approved the application for an increase inauthorized capital stock from P=0.5 million to P=35.0 million and the opening for subscription of72,000 common shares with an aggregate par value of P=7.2 million. Subsequently, STI ESGsubscribed to 32,000 shares or an aggregate par value of P=3.2 million. The BOD of STI Dagupanalso approved the equity conversion of STI Dagupan’s advances from STI ESG amounting toP=19.8 million. As at March 31, 2017, STI ESG’s ownership over STI Dagupan increased from77% to 99.9%.

STI NovalichesIn February 2016, the Company established STI Novaliches with an initial capital of P=5.0 million.

On August 16, 2016, STI Novaliches entered into a Deed of Assignment with STI Diamond whereSTI Diamond assigned, transferred and conveyed in a manner absolute and irrevocable, and freeand clear of all liens and encumbrances, to STI Novaliches all its rights, title and interest in itsassets and liabilities for a price of P=75.0 million, payable quarterly over five years.

Associates

Maestro HoldingsMaestro Holdings is a holding company that holds investments in PhilPlans First, Inc. (PhilPlans),PhilhealthCare, Inc. (PhilCare), Philippine Life Financial Assurance Corporation (PhilLife) andBanclife Insurance Co. Inc. (Banclife). PhilPlans is a leading pre-need company, providinginnovative pension, education and life plans. It owns 65% of Rosehills Memorial Management,Inc. (RMMI), a company engaged in the operation and management of a memorial park, memorial

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and interment services and sale of memorial products. PhilCare is a Health MaintenanceOrganization (HMO) that provides effective and quality health services and operates through itsown clinics and through nationwide accredited clinics and hospitals. PhilLife provides financialservices, such as individual, family and group life insurance, investment plans and loan privilegeprograms. Banclife is formerly engaged in life insurance business in the Philippines. It ceasedoperations in March 2013.

On December 7, 2015, the BOD of Maestro Holdings approved the opening for subscription of437,500 common shares out of its authorized but unissued common stock at a subscription price ofP=800 per share or an aggregate subscription price of P=350.0 million to all stockholders of record ofMaestro Holdings in accordance with their existing shareholdings, subject to the conditions that:(a) each stockholder shall pay 50% of the stockholder’s subscription on or before December 18,2015; and (b) the balance of each stockholder’s subscription shall be payable upon call by theBOD. The purpose of the said capital call is to raise funds for capital infusion in PhilLife and forfuture investments. In 2016, the Company subscribed to an additional 87,479 shares of MaestroHoldings amounting to P=70.0 million. As at March 31, 2016, the Company’s outstandingsubscription payable amounted to P=17.5 million (see Note 16). On June 10, 2016, the BOD ofMaestro Holdings cancelled the balance of the subscription due from its stockholders.

STI HoldingsSTI Holdings is a holding company whose primary purpose is to invest in, purchase or otherwiseacquire and own, hold, use, sell, assign, transfer, lease, mortgage, pledge, exchange, or otherwisedispose of real properties as well as personal and movable property of any kind and description,including shares of stock, bonds, debentures, notes, evidence of indebtedness and other securitiesor obligations of any corporation or corporations, association or associations, domestic or foreignand to possess and exercise in respect thereof all the rights, powers and privileges of ownership,including all voting powers of any stock so owned, but not to act as dealer in securities and toinvest in and manage any company or institution. STI Holdings aims to focus on education andeducation-related activities and investments. In 2017, the Company disposed of a portion of itsinvestment in STI Holdings, or 0.02% interest, resulting in a gain of P=0.05 million.

STI AccentSTI Accent is engaged in providing medical and other related services. It ceased operations onJune 20, 2012 after the contract of usufruct between STI Accent and Dr. Fe Del Mundo MedicalCenter Foundation Philippines, Inc. to operate the hospital and its related healthcare servicebusinesses was rescinded in May 2012. As at March 31, 2017 and 2016, allowance for impairmentloss on the Company’s investment in STI Accent and related advances amounted to P=37.2 millionand P=35.8 million, respectively.

Joint Ventures

STI-PHNSOn September 16, 2005, GROW and PHNS International Holdings, Inc., a company incorporatedin Dallas, Texas, USA, entered into a Joint Venture Agreement (JVA). Under the JVA, the partieshave agreed to incorporate a joint venture company in the Philippines and set certain terms withregards to capitalization, organization, conduct of business and the extent of their participation inthe management of affairs of the joint venture company for the primary purpose of engaging,directly or indirectly, in the business of medical transcription and other related business in thePhilippines. As a result of the JVA, the parties incorporated STI-PHNS where each have a50.00% ownership of the outstanding capital stock of STI-PHNS.

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A Deed of Assignment between GROW and STI was executed on May 5, 2006 to transfer all therights of GROW in the JVA to the latter.

In 2015, the Company provided an allowance for impairment loss on its investment in STI-PHNSamounting to P=5.6 million, since the Company believes that it would no longer be able to recoverits investment as STI-PHNS has already ceased its operations in 2014 (see Note 19).

STI-PHNS ceased operations in 2014. On April 7, 2016, the BOD approved a resolutionregarding the cessation of the STI-PHNS’s business activities and the closure of its operationseffective March 1, 2013. On the same date, the BOD approved the resolution to shorten thecorporate term of STI-PHNS until June 30, 2017. On July 12, 2016, the amendment to STI-PHNSArticles of Incorporation for shortening of the corporate term was approved by the SEC.

PHEIOn March 19, 2004, the Company, together with the University of Makati (UMak) and anothershareholder, incorporated PHEI in the Philippines. The Company and UMak each owns 40.00% ofthe equity of PHEI with the balance owned by another shareholder. PHEI is envisioned as theCollege of Nursing of UMak. The following are certain key terms under the agreement signed in2003 by the Company and UMak:

a. The Company shall be primarily responsible for the design of the curriculum for theBachelor’s Degree in Nursing (“BSN”) and Master’s Degree in Nursing Informatics, withsuch curriculum duly approved by the University Council of UMak;

b. UMak will allow the use of its premises as a campus of BSN while the premises ofiACADEMY will be the campus of the post graduate degree; and

c. The Company will recruit the nursing faculty while UMak will provide the faculty for basiccourses that are non-technical in nature.

For terms and conditions relating to advances to subsidiaries, associates and joint ventures, refer toNote 26.

Details of dividend income received by the Company from its investments follow:

2017 2016STI Holdings P=70,555,723 P=10,046,158STI Marikina 579,710 976,050

P=71,135,433 P=11,022,208

11. Available-for-Sale Financial Assets


2017 2016Quoted equity shares - at fair value P=3,808,240 P=2,961,120Unquoted equity shares - at cost 26,289,744 26,289,744

P=30,097,984 P=29,250,864

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a. Quoted Equity SharesThe quoted equity shares above pertain to listed shares in the PSE as well as traded clubshares. These are carried at fair value with the cumulative changes in fair values presented asa separate component of equity under the “Unrealized mark-to-market loss on available-for-sale financial assets” account in the parent company statements of financial position. The fairvalues of these shares are based on the quoted market price as at financial reporting date.

The rollforward analysis of the “Unrealized mark-to-market loss on available-for-salefinancial assets” account as shown in the equity section of the parent company statements offinancial position follows:

2017 2016Balance at beginning of year (P=871,689) (P=531,785)Unrealized MTM gain (loss) on AFS financial assets 847,120 (339,904)Balance at end of year (P=24,569) (P=871,689)

Dividend income earned from AFS financial assets amounted to P=1.2 million andP=1.6 million in 2017 and 2016, respectively.

b. Unquoted Equity Shares

Unquoted equity shares pertain to unlisted shares of stocks. The fair value of these unquotedequity shares is not reasonably determinable due to the unpredictable nature of future cashflows and the lack of a suitable method of arriving at a reliable fair value, hence, these arecarried at cost less impairment, if any.

c. Pledged Shares

On June 3, 2013, the Company executed a deed of pledge on all of its De Los Santos MedicalCenter shares in favor of Neptune Stroika Holdings, Inc., a wholly-owned subsidiary of MetroPacific Investments Corporation (MPIC), to cover the indemnity obligations of the Companyenumerated in its investment agreement entered into in 2013 with MPIC. The completion ofMPIC’s subscription resulted in the cessation of De Los Santos-STI Megaclinic and De LosSantos Medical Center as associates of the Company effective June 2013. Consequently, theCompany’s effective percentage ownership in De Los Santos Medical Center and De LosSantos-STI Megaclinic were diluted and such was reclassified to AFS financial assets. Thecarrying value of the investment in De Los Santos Medical Center amounted to P=25.9 millionas at March 31, 2017 and 2016.

12. Goodwill, Intangible and Other Noncurrent Assets


2017 2016Goodwill P=74,802,032 P=74,802,032Deposits for asset acquisitions 72,764,000 –Rental deposits (see Note 24) 32,632,228 30,232,015Intangible assets 22,395,838 30,821,915Advances to suppliers 17,019,902 52,897,107Others 2,195,721 1,616,951

₱221,809,721 ₱190,370,020

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GoodwillAs at March 31, 2017 and 2016, goodwill acquired through business combinations have beenallocated to the following schools which are considered as separate CGUs:

STI Cubao P=28,327,670STI Global City 11,360,085STI Edsa Crossing 11,213,342STI Ortigas-Cainta 7,476,448STI Meycauayan 5,460,587STI Makati 3,261,786STI Las Piñas 2,922,530STI Kalibo 2,474,216STI Naga 2,305,368

P=74,802,032

Management performs its annual impairment test every March 31 of each year for all the CGUs.The recoverable amounts are based on value-in-use. Future cash flows are discounted using theweighted average cost of capital of 10.0%, adjusted for the entity-specific inflation risk of 5.0%.The cash flow projections are based on a five-year financial planning period approved by seniormanagement. Management has determined, based on this analysis, that there are no impairmentloss in 2017 and 2016.

Deposits for Asset AcquisitionsThis account includes deposits paid for the purchase of certain parcels of land located inPoblacion, Lipa City, Batangas which will be the site of STI Academic Center Lipa and depositspaid for the acquisition of the net assets of an STI franchised school located in Santa Maria,Bulacan (see Note 33).

Rental DepositsThis account includes security deposits paid to utility companies and for warehouse and officespace rentals to be applied against future lease payments in accordance with the respective leaseagreements.

Intangible AssetsIntangible assets represent the Group’s accounting and school management software. The SchoolManagement Software was partially implemented in April 2016. The Group expects fullimplementation of the software in April 2017.

The rollforward analyses of this account follow:

2017 2016Cost, net of accumulated amortization:Balance at beginning of year P=30,821,915 P=32,298,247Additions 167,170 1,284,541Amortization (see Notes 19 and 21) (8,593,247) (2,760,873)Balance at end of year P=22,395,838 P=30,821,915

Cost P=38,559,362 P=38,392,191Accumulated amortization 16,163,524 7,570,276Net carrying amount P=22,395,838 P=30,821,915

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Advances to SuppliersAdvances to suppliers pertain to advance payments made in relation to the acquisition of propertyand equipment and investment properties. These will be reclassified to the “Property andequipment” or the “Investment properties” account when the goods are received or the services arerendered.

13. Interest-bearing Loans and Borrowings


2017 2016Current portion:

Short-term loans P=545,000,000 P=–Corporate notes facility 40,800,000 100,800,000

585,800,000 100,800,000Noncurrent 734,400,000 775,200,000

P=1,320,200,000 P=876,000,000

Short-term LoansSTI ESG availed of loans from Bank of the Philippine Islands, Security Bank and China Bank in2017 aggregating to P P=1,793.0 million of which P=1,248 million have been settled as at March 31,2017. Interest rates of STI ESG loans ranged from 3.25% to 3.75%. The proceeds from theseloans were used to fund the acquisition of the properties in EDSA, Pasay City and for workingcapital requirements.

Corporate Notes FacilityOn March 20, 2014, the Company entered into a Corporate Notes Facility Agreement (CreditFacility Agreement) with China Banking Corporation (China Bank) granting STI ESG a creditfacility amounting to P=3,000.0 million with a term of either 5 or 7 years. The facility is availablein two tranches of P=1,500.0 million each. The net proceeds from the issuance of the notes shall beused for capital expenditures and other general corporate purposes.

On May 9, 2014, the first drawdown date, STI ESG elected to have a 7-year term loan withfloating interest based on the 1-year PDST-F plus a margin of two percent (2.00%) per annum,which interest rate shall in no case be lower than the BSP overnight rate plus a margin of three-fourths percent (0.75%) per annum, which is subject to repricing.

In 2015, the Company availed a total of P=1,200.0 million loans with interest ranging from 4.34%to 4.75%. The Company has made payments totaling to P=100.8 million and P=216.0 million in2017 and 2016, respectively.

These loans are unsecured and are due based on the following schedule.

Fiscal Year Amount2018 P=40,800,0002019 134,400,0002020 240,000,0002021 240,000,0002022 120,000,000

P=775,200,000

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An Accession Agreement to the Credit Facility Agreement was executed on December 16, 2014among the Company, STI West Negros University (STI WNU), a company under commoncontrol with STI ESG, and China Bank whereby STI WNU acceded to the Credit Facility enteredinto by the Company with China Bank in March 2014. In addition, an Amendment andSupplemental Agreement was also executed by the parties on the same date. By virtue of theAccession Agreement, a sub limit of P=500.0 million was made available to STI WNU andUNLAD Resources Development Corporation. The Amendment and Supplemental Agreementallowed STI WNU to draw up to P=300.0 million from the facility.

On December 19, 2014, the Company advised China Bank that it will not be availing of tranche 2of the Credit Facility Agreement thus limiting the facility available to the Company toP=1.5 billion.

The Credit Facility Agreement contains, among others, covenants regarding incurring additionaldebt and declaration of dividends, to the extent that such will result in a breach of the requireddebt-to-equity and debt service cover ratios. The Company was required to maintain a debt-to-equity ratio of not more than 1.0:1 and debt service cover ratio of not less than 1.1:1.

Breakdown of the Company’s Credit Facility Agreement follows:

2017 2016Balance at beginning of year P=876,000,000 P=1,092,000,000Repayments 100,800,000 216,000,000Balance at end of year 775,200,000 876,000,000Less current portion 40,800,000 100,800,000Noncurrent portion P=734,400,000 P=775,200,000

On January 19, 2017, the Company and China Bank executed a Second Amendment andSupplemental Agreement to the Corporate Notes Facility Agreement. Significant amendmentsare as follows:

a) change in interest rate of either (1) the 1-year Benchmark Rate plus a margin of 1.5% per annumwhich interest rate shall in no case be lower than 3.75% per annum or (2) the 3-monthBenchmark Rate plus a margin of 1.5% per annum which interest rate shall in no case be lowerthan 3.5% per annum;

b) amendments on the required financial ratios, whereby STI ESG shall maintain the followingratios which shall be computed based on the consolidated financial statements:

(1) Debt-to-equity ratio of not more than 1.5x, computed by dividing total debt by totalequity. For the purpose of this computation, total debt shall exclude unearned tuition andother school fees;

(2) Debt service cover Ratio of a minimum of 1.05x.

As at March 31, 2017 and 2016, the Company complied with the above covenants(see Note 15).

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Interest ExpenseStarting with interest period February 1, 2016, the one year PDST-F on the Credit FacilityAgreement was changed to PDST-R2 as the basis for determining the interest rate.

On January 31, 2017, STI ESG elected to adopt the interest rate based on the 1-year BenchmarkRate plus a margin of 1.5% per annum which interest rate shall in no case be lower than 3.75%payable every January 31 and July 31 of each year.

Interest incurred on the loans amounted to ₱58.8 million and ₱48.6 million in 2017 and 2016,respectively (see Note 18).

14. Accounts Payable and Other Current Liabilities


2017 2016Accounts payable (see Note 26) P=189,933,608 P=176,965,621Due to subsidiaries and other related parties

(see Note 26) 280,340,230 181,039,649Accrued expenses:

Rent 26,731,357 22,741,318School-related expenses 16,350,736 22,781,414Interest 10,877,429 7,145,151Salaries, wages and benefits 9,950,469 10,666,823Contracted services 9,903,672 12,965,669Advertising and promotion 3,683,169 2,066,789Utilities 2,817,734 2,517,838Others 6,718,437 5,806,949

Subscriptions payable (see Notes 10 and 26) 15,000,000 32,495,800Network events fund 7,781,437 5,736,238Withholding taxes payable 6,502,526 5,457,553Student organization fund 1,826,036 1,120,266Current portion of refundable deposits (see Note 24) 1,413,374 1,394,670Others 31,592,969 27,454,547

P=621,423,183 P=518,356,295

The terms and conditions of the liabilities are as follows:

a. Accounts payable are noninterest-bearing and are normally settled within a 30 to 60-dayterm.

b. Accrued expenses, network events fund, withholding taxes payable, student organizationfund and other payables are expected to be settled within the next financial year.

c. Subscriptions payable as at March 31, 2017 pertain to the acquisition of STI Pagadianwhile the amount outstanding as at March 31, 2016 includes the balance of the price thatshall be paid upon call by the BOD of Maestro Holdings. This balance was subsequentlycancelled by the BOD of Maestro Holdings on June 10, 2016 (see Note 10).

d. Refundable deposits pertain to security deposits received from existing lease agreementsand are expected to be settled within the next financial year.

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For terms and conditions related to due to subsidiaries and related parties, refer to Note 26.

15. Bonds Payable

On March 23, 2017, the Company issued the first tranche of its ₱5,000.0 million fixed rate bondsprogram under its 3-year shelf registration with the SEC, which were listed through the PhilippineDealing and Exchange Corp. The bonds, amounting to an aggregate of ₱3,000.0 million, payablequarterly, were issued with a fixed rate 5.8085% for the 7-year series, due 2024, and 6.3756% forthe 10-year series, due 2027, and were rated a high rating of ‘PRS Aa’ by Philippine RatingServices Corporation (PhilRatings). Proceeds of the issuance will be used to finance the campusexpansion projects, refinancing of the short-term loans incurred for the acquisition of land, and forother general corporate requirements of the Company and its subsidiaries.

The bonds include an embedded derivative in the form of an early redemption option that gives theCompany the option, but not the obligation, to redeem in whole (and not in part), the outstandingbonds before the relevant maturity date, based on a certain price depending on the fixed earlyredemption option dates. Management has assessed that the early redemption option is closelyrelated to the bonds and would not require to be separated from the value of the bonds andaccounted for as a derivative under PAS 39, Financial Instruments: Recognition andMeasurement.

A summary of the terms of the Company’s issued bonds is as follows:

YearIssued

InterestPayable Term

InterestRate Principal Amount

Carrying Valueas at March 31,

2017 Features2017 Quarterly 7 years 5.8085% ₱2,180,000,000 ₱2,180,000,000 Callable on the 3rd month

after the 5th anniversaryof Issue Date and on the6th anniversary of IssueDate

2017 Quarterly 10 years 6.3756% 820,000,000 820,000,000 Callable from the 7thanniversary issue andevery year thereafteruntil the 9th anniversaryissue date

₱3,000,000,000 ₱3,000,000,000

CovenantsThe bonds provide certain restrictions and requirements with respect to, among others, change inmajority ownership and management, merger or consolidation with other corporation resulting inloss of control over the overall resulting entity and sale, lease, transfer or otherwise disposal of allor substantially all of its assets. The Credit Facility Agreement also contains, among others,covenants regarding incurring additional debt and declaration of dividends. The Company isrequired to maintain a debt-to-equity ratio of not more than 1.5:1 and debt service cover ratio ofnot less than 1.05:1.

The Company’s debt-to-equity and debt service cover ratio as at March 31, 2017 are as follows:

Total liabilities * P=4,970,300,424Total equity 5,336,128,924Debt-to-equity 0.93:1.00

* Excluding unearned tuition fee and other school fees

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EBITDA P=1,196,978,911Total interest-bearing liabilities 827,209,892Debt service cover 1.45:1.00

Bond Issuance CostsThe Company incurred costs related to the issuance of the bonds amounting to ₱53.1 million.These costs are capitalized and amortized using the effective interest rate method. These arepresented as a contra-liability account in the parent company statement of financial position as atMarch 31, 2017. The carrying value of the bond issuance costs amounted to ₱53.0 million as atMarch 31, 2017. Amortization of bond issuance costs amounted to ₱0.1 million in 2017 isrecognized as part of the “Interest expense” account in the parent company statement ofcomprehensive income.

Interest ExpenseInterest expense associated with the bonds payable recognized in the parent company statement ofcomprehensive income amounted to ₱4.5 million in 2017. (see Note 18)

16. Other Noncurrent Liabilities


2017 2016Advance rent P=38,033,539 P=18,132,912Refundable deposit - net of current portion 17,821,827 8,927,289Deferred lease liability 3,233,954 2,195,644

P=59,089,320 P=29,255,845

Advance rent pertains to advance rentals which have not yet been earned by the Company as thesecollections apply to periods more than one year after the reporting date.

Refundable deposits are held by the Company throughout the term of the lease and are refunded infull to the lessee at the end of the lease term if the lessee has performed fully and observed all ofthe conditions and provisions in the lease.

Refundable deposits are presented in the parent company statements of financial position atamortized cost. The difference between the fair value at initial recognition and the notionalamount of the refundable deposit is charged to “Deferred lease liability” and amortized on astraight-line basis over the respective lease term.

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17. Equity

Capital StockThe details of the number of common shares follow:

2017 2016Authorized - ₱1 par value 5,000,000,000 5,000,000,000

Issued and outstanding 3,081,871,859 3,081,871,859

Retained Earnings

a. On September 9, 2016, the BOD approved the cash dividends declaration amounting to₱246.5 million, or ₱0.08 per share, in favor of the stockholders of record as at September9, 2016. Such dividends were paid on September 15, 2016. On September 20, 2016, theBOD also approved the cash dividends declaration amounting to ₱832.1 million, or ₱0.27per share, in favor of stockholders of record as at September 20, 2016. The Companypaid ₱431.5 million and ₱400.6 million dividends to its stockholders on September 23,2016 and November 3, 2016, respectively.

b. On September 4, 2015, the BOD approved the cash dividends declaration amounting to₱250.0 million, or ₱0.08 per share, in favor of the stockholders of record as at August 31,2015. Such dividends were paid on September 16, 2015.

c. The Company’s retained earnings available for dividend declaration, computed based onthe guidelines provided in the SEC Memorandum Circular No. 11, amounted to₱1,828.3 million and ₱2,126.8 million as at March 31, 2017 and 2016, respectively.

18. Interest Income and Interest Expense

Sources of interest income are as follows:

2017 2016Cash and cash equivalents (see Note 4) P=926,782 P=1,986,446Past due accounts receivables (see Note 5) 1,472,985 1,406,303Others 3,894 268,859

P=2,403,661 P=3,661,608

Sources of interest expense are as follows:

2017 2016Interest-bearing loans and borrowings (see Note 13) P=58,785,842 P=48,581,036Bonds payable (Note 15) 4,472,631 –Obligations under finance lease (see Note 24) 636,122 860,200Others 464,149 298,226

P=64,358,744 P=49,739,462

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19. Cost of Educational Services


2017 2016Faculty salaries and benefits (see Note 22) P=178,224,926 P=160,732,878Depreciation and amortization (see Note 8,9 and 12) 153,903,974 134,037,121Commencement, convention and other service cost 71,416,760 57,507,770Rental (see Note 24) 57,733,427 54,456,557Student activities and programs 27,841,737 34,568,954School materials and supplies 10,037,514 9,263,251Software maintenance 9,432,849 7,171,434Courseware development costs 1,240,521 2,930,595Training 1,149,533 1,608,112Others 1,840,646 2,825,075

P=512,821,887 P=465,101,747

20. Cost of Educational Materials and Supplies Sold


2017 2016Educational materials and supplies ₱99,125,215 ₱38,290,412Promotional materials 12,163,350 12,611,972Others 1,036,720 1,049,425

₱112,325,285 ₱51,951,809

21. General and Administrative Expenses


2017 2016Salaries, wages and benefits (see Note 22) P=202,749,520 P=196,722,182Depreciation and amortization (see Notes 8, 9 and 12) 143,440,072 141,605,664Light and water 64,368,654 63,837,913Professional fees 51,569,224 55,428,668Outside services 50,110,423 44,902,019Provision for impairment loss on:

Receivables (see Note 5) 45,567,240 55,693,338Investments in and advances to subsidiaries and

associates and joint ventures (see Note 10) 2,234,375 519,420Rental (see Note 24) 34,180,169 32,040,030Transportation 24,495,130 24,046,668Taxes and licenses 23,282,443 15,245,938Meetings and conferences 16,201,414 15,215,207

(Forward)

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2017 2016Entertainment, amusement and recreation P=14,944,670 P=10,613,236Repairs and maintenance 13,090,719 10,174,594Insurance 8,725,823 9,461,868Office supplies 7,983,620 7,855,729Advertising and promotions 7,869,160 47,711,239Communication 6,398,351 6,601,926Donations and contributions 2,906,351 4,312,705Software maintenance cost 2,203,386 1,666,137Purchased services and utilities 235,457 361,164Others 11,737,999 7,942,602

P=734,294,200 P=751,958,247

22. Personnel Costs


2017 2016Salaries and wages ₱335,310,452 ₱312,807,151Pension expense (see Note 23) 10,319,938 9,705,461Other employee benefits 35,344,056 34,942,448

₱380,974,446 ₱357,455,060

23. Pension Plan

The Company has a funded, noncontributory defined benefit pension plan covering substantiallyall of its faculty and regular employees. The benefits are based on the faculties’ and employees’salaries and length of service.

Under the existing regulatory framework, RA No. 7641 (Retirement Pay Law) requires aprovision for retirement pay to qualified private sector employees in the absence of any retirementplan in the entity, provided however that the employee’s retirement benefits under any collectivebargaining and other agreements shall not be less than those provided under the law. The law doesnot require minimum funding of the plan.

Retirement benefits are payable in the event of termination of employment due to: (i) early,normal, or late retirement; (ii) physical disability; (iii) voluntary resignation; or (iv) involuntaryseparation from service. For plan members retiring under normal, early or late terms, retirementbenefit is equal to a percentage of final monthly salary for every year of credited service.

In case of involuntary separation from service, benefit is determined in accordance with theTermination Pay provision under the Philippine Labor Code or similar legislation on involuntarytermination.

The funds are administered by a trustee bank under the supervision of the Board of Trustees of theplan. The Board of Trustees is responsible for investment of the assets. It defines the investmentstrategy as often as necessary, at least annually, especially in the case of significant marketdevelopments or changes to the structure of the plan participants. When defining the investmentstrategy, it takes account of the plans’ objectives, benefit obligations and risk capacity.

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The investment strategy is defined in the form of a long-term target structure (Investment policy).The Board of Trustees implements the Investment policy in accordance with the investmentstrategy, as well as various principles and objectives.

The following tables summarize the components of the Company’s net pension expenserecognized in the parent company statements of comprehensive income and the funded status andpension liability recognized in the parent company statements of financial position:

2017 2016Pension expense (recognized under the “Salaries,

wages and benefits” account):Current service cost ₱8,924,237 ₱8,798,225Net interest cost 1,395,701 907,236

₱10,319,938 ₱9,705,461

Pension liability (assets) (recognized in the parentcompany statements of financial position):Present value of defined benefit obligation ₱125,948,693 ₱110,865,196Fair value of plan assets (128,712,091) (83,062,400)

(₱2,763,398) ₱27,802,796

Changes in the present value of defined benefitobligation:Balance at beginning of year ₱110,865,196 ₱102,280,690Current service cost 8,924,237 8,798,225Interest cost 5,565,433 4,991,298Actuarial (gain) loss on obligation from:

Changes in demographic assumptions 3,021,982 1,357,934Changes in financial assumptions (271,760) (4,685,665)

Benefits paid (2,156,395) (1,877,286)Balance at end of year ₱125,948,693 ₱110,865,196

Changes in the fair value of plan assets:Balance at beginning of year ₱83,062,400 ₱83,689,789Interest income 4,169,732 4,084,062Actuarial gain (loss) on plan assets 34,557,089 (12,202,484)Contributions 9,079,265 9,368,319Benefits paid (2,156,395) (1,877,286)Balance at end of year ₱128,712,091 ₱83,062,400

The maximum economic benefit available is a combination of expected refunds from the plan andreductions in future contributions.

The major categories of the Company’s total plan assets as a percentage of the fair value of thetotal plan assets are as follows:

2017 2016Cash and cash equivalents 9% 36%Short-term fixed income 29% 1%Investments in:

Equity securities 60% 59%Debt securities 2% 4%

100% 100%

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The plan assets of the Company are maintained by Union Bank of the Philippines and UnitedCoconut Planters Bank.

Details of the Company’s net assets available for plan benefits and their related market values areas follows:

2017 2016Cash ₱11,477,268 ₱29,780,123Short-term fixed income 37,375,570 1,549,000Investments in:

Equity securities 76,885,722 48,627,116Government securities 2,973,531 3,072,770

Others – 33,391₱128,712,091 ₱83,062,400

Short-term Fixed Income. Short-term fixed income investment includes time deposits and specialsavings deposits.

Investments in Government Securities. Investments in government securities include treasury billsand fixed-term treasury notes with maturities ranging from one to thirteen years and bear interestrates ranging from 5.9% to 9.0%. These securities are fully guaranteed by the Government of theRepublic of the Philippines.

Investments in Equity Securities. Investments in equity securities pertain to investment in sharesof STI Holdings, the ultimate parent company, which has a fair value of 0.50 and ₱0.57 per shareas at March 31, 2017 and 2016, respectively.

The plan may expose the Company to a concentration of equity market risk since the Company’splan assets are primarily composed of investments in listed equity securities.

The expected contribution of the Company in 2018 is ₱9.6 million.

Management performs an Asset-Liability Matching Study annually. The overall investmentpolicy and strategy of the Company’s defined benefit plans is guided by the objective of achievingan investment return which, together with contributions, ensures that there will be sufficient assetsto pay pension benefits as they fall due while also mitigating the various risk of the plans.The Company’s current strategic investment strategy consists of 59% of equity instruments, 4% ofdebt instruments, 1% short-term fixed income and 36% of cash and cash equivalents.

The average duration of the defined benefit obligation at the end of the period is 17 years.

Shown below is the maturity analysis of the undiscounted benefit payments:

2017 2016Less than one year ₱19,088,254 ₱16,545,846More than one year to five years 15,505,217 11,444,774More than five years to 10 years 71,883,384 58,131,406More than 10 years to 15 years 101,199,673 90,188,633More than 15 years to 20 years 451,888,358 130,967,429

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The principal assumptions used in determining pension liability are shown below:

March 31,2017

March 31,2016

Discount rate 5.00% 5.02%Future salary increases 5.00% 5.00%

The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation (DBO) as at the end of the reportingperiod, assuming all other assumptions were held constant:

Effect on Present Value of DBO2017 2016

Discount ratesIncrease by 1% (₱12,536,721) (₱11,514,616)Decrease by 1% 15,079,321 13,887,321

Future salary increasesIncrease by 1% 14,862,020 13,698,976Decrease by 1% (12,711,470) (11,670,728)

24. Leases

a. Finance Lease

The Company acquired various transportation equipment under various finance leasearrangements. These are included as part of transportation equipment under the “Property andequipment” account in the parent company statements of financial position.

Future annual minimum lease payments under the lease agreements, together with the presentvalue of the minimum lease payments follow:

2017 2016Within one year ₱5,173,505 ₱5,465,129After one year but not more than five years 6,930,865 5,883,568Total minimum lease payments 12,104,370 11,348,697Less amount representing interest 1,060,918 839,731Present value of lease payments 11,043,452 10,508,966Less current portion of obligations under

finance lease 4,597,397 4,659,752Noncurrent portion of obligations under

finance lease ₱6,446,055 ₱5,849,214

Interest incurred from finance lease amounted to ₱0.6 million and ₱0.9 million in 2017 and2016, respectively (see Note 18).

b. Operating Lease

As LessorThe Company entered into several lease agreements, as lessors, on their buildings andcondominium units under operating lease agreements with varying terms and periods. Allleases are subject to annual repricing based on a pre-agreed rate.

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In March 2015, TechZone completed the construction of the condominium units and turned-over the units for retrofitting. STI ESG entered into several lease agreements, as lessor, onthe condominium units under operating lease agreements with varying terms and periods.

The Company also earns rental income from concessionaires and for the occasional use ofsome of the Company’s properties primarily used for school operations such as gymnasiums.

Total rental income amounted to ₱186.2 million and ₱134.4 million in 2017 and 2016,respectively (see Note 9 and 26).

Future minimum rental receivable for the remaining lease terms follows:

2017 2016Within one year ₱95,191,676 ₱166,635,959After one year but not more than five years 281,130,922 314,224,299

₱376,322,598 ₱480,860,258

As LesseeThe Company leases land and building spaces, where the corporate office and schools arelocated, under operating lease agreements with varying terms and periods. The lease rates aresubject to annual repricing based on a pre-agreed rate.

On May 13, 2016, the Company and BDO Unibank, Inc. (BDO Unibank), the trustee bank ofPhilPlans, entered into an agreement for the lease of a property in Calamba, Laguna. The termof the lease is 25 years starting July 2016 with a monthly rental of ₱0.4 million. The annualrental shall be subject to a 3% escalation every three years starting on the fourth year of thelease term. Under the terms of the lease agreement, the Company is required to make anupfront payment of ₱7.4 million as well as one (1) year advance rent.

Total rental expense charged to operations amounted to ₱91.9 million and ₱86.5 million in2017 and 2016, respectively (see Notes 19 and 21).

Future minimum rental payables under the lease agreements follow:

2017 2016Within one year ₱76,828,731 ₱52,486,463After one year but not more than five years 149,442,216 138,203,082More than five years 240,226,634 174,613,877

₱466,497,581 ₱365,303,422

25. Income Tax

The Company, as a private educational institution, is subject to tax under RA No. 8424, “An ActAmending the National Internal Revenue Code, as amended, and For Other Purposes”, which waspassed into law effective January 1, 1998. Title II Chapter IV - Tax on Corporation - Sec 27(B) ofthe said Act defines and provides that: a “Proprietary Educational Institution” is any private schoolmaintained and administered by private individuals or groups with an issued permit to operatefrom DepEd, or CHED, or TESDA, as the case may be, in accordance with the existing laws andregulations and shall pay a tax of ten percent (10.00%) on its taxable income.

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The components of recognized net deferred tax assets are as follows:

2017 2016Deferred tax assets:

Allowance for doubtful accounts ₱5,681,884 ₱6,043,063Advance rent 3,803,353 1,813,291Unearned tuition and other school fees 2,664,205 2,446,962Excess of:

Cost over net realizable value of inventories 1,045,630 1,045,630Rental under operating lease computed on a

straight-line basis 815,852 1,305,408Pension liability – 2,780,280

14,010,924 15,434,634Deferred tax liabilities:

Deferred finance charges (1,496,545) –Pension assets (276,340) –Excess of fair values of net assets acquired over acquisition cost from a business combination (209,143) (209,143)

(1,982,028) (209,143)₱12,028,896 ₱15,225,491

As at March 31, 2017 and 2016, the Company did not recognize any deferred tax asset on theprovision for impairment losses on investment in and advances to subsidiaries, associates and jointventures aggregating to ₱9.5 million because management does not expect to generate enoughcapital gains against which these capital losses can be offset.

The reconciliation of the provision for income tax on income before income tax computed at theeffect of the applicable statutory income tax rate and the provision for income tax as shown in theparent company statements of comprehensive income is summarized as follows:

2017 2016Provision for income tax at statutory income

tax rate ₱85,117,978 ₱54,471,365Income tax effects of:

Dividend income (7,235,550) (1,258,923)Royalty fees subjected to final tax (2,747,135) (2,400,953)Interest income already subjected to final tax (92,678) (198,645)Others (813,603) 140,250

₱74,229,012 ₱50,753,094

26. Related Party Transactions

Parties are considered to be related if one party has the ability to control the other party or exercisesignificant influence over the other party in making financial and operating decisions. Thisincludes: (a) enterprises or individuals owning, directly or indirectly through one or moreintermediaries, control or are controlled by, or under common control with the Company; (b)associates; and (c) enterprises or individuals owning, directly or indirectly, an interest in thevoting power of the company that gives them significant influence over the company, keymanagement personnel, including directors and officers of the Company and close members of the

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family of any such enterprise or individual.

The following are the Company’s transactions with its related parties:

Amount of TransactionsDuring the Year

Outstanding Receivable (Payable)

Related Party 2017 2016 2017 2016 Terms ConditionsSubsidiariesSTI CaloocanEducational services, sale of

educational materials andsupplies, management fees,and other charges

₱87,553,701 ₱ 74,056,344 ₱9,664,653 ₱2,435,735 30 days from billingor cut-off date;noninterest-bearing

Unsecured; noimpairment

Advances for various expenses 3,942,804 6,439,349 (173,976,567) (123,417,700) 30 days from billingor cut-off date;noninterest-bearing


Rental income and other relatedcharges

56,324,352 56,324,352 – – 30 days from billingor cut-off date;noninterest-bearing


STI DagupanEducational services, sale of




Advances for various expenses 2,227,525 3,325,984 (1,423,419) 125,757 30 days from billingor cut-off date;noninterest-bearing


STI DiamondEducational services, sale of


– 48,139,753 – 1,151,991 30 days from billingor cut-off date;noninterest-bearing


Advances for various expenses – 3,016,680 – (57,621,949) 30 days from billingor cut-off date;noninterest-bearing



– 34,406,400 – – 30 days from billingor cut-off date;noninterest-bearing


STI NovalichesEducational services, sale of


66,102,492 – 6,699,025 – 30 days from billingor cut-off date;noninterest-bearing


Advances for various expenses 2,163,074 25,000 (93,464,930) 25,000 30 days from billingor cut-off date;noninterest-bearing



34,406,400 – – – 30 days from billingor cut-off date;noninterest-bearing


STI TaftEducational services, sale of




Advances for various expenses 895,884 2,399,740 (2,082,755) 154,988 30 days from billingor cut-off date;noninterest-bearing


Deposits for future stocksubscription

– 48,981,700 – 48,981,700 30 days from billingor cut-off date;noninterest-bearing


(Forward)

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Related Party 2017 2016 2017 2016 Terms ConditionsSTI TuguegaraoEducational services, sale of


P=1,299,788 P=1,480,879 P=11,478,500 P=10,364,237 30 days from billingor cut-off date;noninterest-bearing


Advances for various expenses 1,088,769 1,539,264 1,028,319 683,947 30 days from billingor cut-off date;noninterest-bearing


STI QAEducational services, sale of


10,743,148 9,553,967 1,061,001 – 30 days from billingor cut-off date;noninterest-bearing


Advances for various expenses 9,600 1,760 14,251,548 14,241,948 30 days from billingor cut-off date;noninterest-bearing


STI BatangasEducational services, sale of

educational materials andsupplies , management feesand other charges

28,586,352 7,328,884 13,310,316 7,237,180 30 days from billingor cut-off date;noninterest-bearing


Advances for various expenses 7,319,347 4,362,250 7,319,347 4,362,250 30 days from billingor cut-off date;noninterest-bearing





STI PagadianEducational services, sale of

educational materials andsupplies , management feesand other charges

1,144,588 1,407,103 1,322,611 318,973 30 days from billingor cut-off date;noninterest-bearing


Advances for various expenses 2,422,408 1,127,687 3,686,751 1,264,946 30 days from billingor cut-off date;noninterest-bearing


Subscription of common stock – – (15,000,000) (15,000,000) Due and demandable;noninterest-bearing


STI IloiloEducational services, sale of

educational materials andsupplies,

3,041,949 2,926,147 486,627 – 30 days from billingor cut-off date;noninterest-bearing


Advances for various expenses 277,553 108,309 6,444,083 6,166,529 30 days from billingor cut-off date;noninterest-bearing


STI TanauanEducational services , sale of




Advances for various expenses 11,474,151 2,637,981 (9,392,560) 2,081,591 30 days from billingor cut-off date;noninterest-bearing


STI LipaEducational services , sale of




Advances for various expenses 547,435 289,456 625,125 77,690 30 days from billingor cut-off date;noninterest-bearing


(Forward)

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Related Party 2017 2016 2017 2016 Terms ConditionsDe Los Santos-STI CollegeDividend income P=– P=– P=– P=– 30 days upon receipt

of billings;noninterest-bearing


AssociatesMaestro HoldingsSubscription of common stock – 69,983,200 – (17,495,800) Due and demandable;

noninterest-bearing


STI AlabangEducational services and sale of

educational materials andsupplies

17,539,509 14,272,901 1,124,509 – 30 days upon receiptof billings;noninterest –bearing


STI AccentAdvances for various expenses 1,643,844 519,414 37,277,147 35,633,303 30 days upon receipt


Unsecured;impaired

GROWRental income and related

charges– – 7,139,094 7,239,094 30 days upon receipt



Advances for various expenses 30,708 54,539 143,571 143,571 30 days upon receiptof billings;noninterest-bearing


STI HoldingsAdvances for various expenses 324,615 1,230,838 – – 30 days upon receipt



Advisory fees 16,128,000 16,128,000 – – 30 days upon receiptof billings;noninterest-bearing


Dividend income 10,046,158 10,046,158 – – Due and demandable;noninterest-bearing


STI MarikinaDividend income 1,220,063 976,050 – – Due and demandable;

noninterest-bearing


Educational Services; sale ofeducational materials andsupplies, management feesand other charges

15,404,214 11,140,869 31,789 – 30 days upon receiptof billings;noninterest-bearing


Joint VenturePHEIAdvances for various expenses – 575,000 – – 30 days upon receipt



Affiliates*STI WNUEducational Services; sale of

educational materials andsupplies

10,066,781 1,659,653 – – 30 days upon receiptof billings;Noninterest –bearing

Unsecure; noimpairment

Advances for various expenses 2,653,983 21,236,416 – 109,196 30 days upon receiptof billings;noninterest-bearing


(Forward)

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Amount of Transactions

During the Year Outstanding Receivable

(Payable) Related Party 2017 2016 2017 2016 Terms Conditions iACADEMY Advances for various expenses P=978,577 P=– P=– P=– 30 days from billing

or cut-off date; noninterest-bearing

Unsecured; no impairment

Philippine First Condominium

Corporation

Association dues, utilities and other related charges

12,296,975 11,317,782 – (376,179) 30 days upon receipt of billings; noninterest-bearing


Phil First Insurance Co., Inc. Utilities and other charges 214,505 221,243 – 491,823 30 days upon receipt

of billings; noninterest-bearing


Insurance 4,540,984 3,594,606 – (8,707) 30 days upon receipt of billings; noninterest-bearing


PhilCare Rental income and other

charges 18,210,903 17,284,807 3,562,049 3,135,109 30 days upon receipt



HMO coverage 3,306,371 3,514,745 – – 30 days upon receipt of billings; noninterest-bearing


Others Rental and other charges 3,266,066 641,286 1,972,716 1,376,788 30 days upon receipt



Officers and employees Advances for various expenses 16,954,041 12,753,872 17,208,914 17,514,507 Liquidated within one

month; noninterest-bearing


*Affiliates pertain to various entities under common control of a major Shareholder

Related party receivables and payables are generally settled in cash.

Outstanding receivables, before any allowance for impairment, and payables arising from these transactions are summarized below:

2017 2016 Advances to associates and joint ventures

(see Note 10) ₱107,887,920 ₱87,884,897 Deposit for future stock subscription (see Note 10) – 48,981,700 Educational services (see Note 5) 46,304,336 25,336,679 Advances to officers and employees (see Note 5) 17,208,914 17,514,507 Rent, utilities and other related receivables

(see Note 5) 12,703,725 12,272,681 Current portion of advances to associates and other

related parties (see Note 5) 143,571 252,767 (Forward)

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2017 2016Accounts payable (see Note 14) P=– (P=384,886)Subscriptions payable (see Note 14) (15,000,000) (32,495,800)Due to subsidiaries and other related parties

(see Note 14) (280,340,230) (181,039,649)(₱111,091,764) (₱21,677,104)

The Company has Management and Licensing Agreements with certain subsidiaries and relatedparties for educational services, sale of educational materials and supplies, royalty fees and others.Also, under the terms of the Management and Licensing Agreements, the licensees shall pay STI:(a) an upgrade fee; (b) a management fee; (c) a percentage of the revenues generated by the tie-upinitiated by the licensees with any educational institution and/or company; (d) the related cost andexpenses of the educational services described in the Licensing Agreement; and (e) its share inadvertising and promotional expenses.

Compensation and Benefits of Key Management PersonnelCompensation and benefits of key management personnel of the Company are as follows:

2017 2016Short-term employee benefits ₱41,104,402 P=36,622,357Post-employment benefits 2,053,780 1,724,890

₱43,158,182 P=38,347,247

27. Basic and Diluted EPS

The table below shows the summary of net income and weighted average number of commonshares outstanding used in the calculation of EPS:

2017 2016Net income ₱776,950,770 ₱493,960,555

Weighted average number of common sharesoutstanding: ₱3,081,871,859 ₱3,081,871,859

Basic and diluted EPS ₱0.25 ₱0.16

The basic and diluted earnings per share are the same for the years ended March 31, 2017 and2016 as there are no dilutive potential common shares.

28. STI Gift of Knowledge Certificates (GOKs)

On December 9, 2002, the BOD approved the offer for sale and issue of up to ₱2.0 billion worthof GOKs.

The STI GOKs are noninterest-bearing certificates that entitle the holders or any designatedscholars to redeem academic units in any member of the STI Group or equivalent academic unitsin any STI school on certain designated redemption dates or, to require STI to pay in cash the parvalue of the outstanding STI GOKs on designated graduation dates. The redemption dates rangefrom the SY 2004-2005 to six years from date of issue of the STI GOKs. The graduation dates

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range from between four to ten years from issue date. A total offer size of 2,409,600 academicunits for the entire STI Group or its equivalent units in any STI school will be offered at serialredemption dates at their corresponding par values.

In 2003, the SEC issued an Order of Registration and a Certificate of Permit to Sell Securities forthe said STI GOKs.

The Company is planning to amend the terms of the GOKs to conform with future businessstrategies.

As at July 6, 2017, there has been no sale nor issuance of GOKs. Hence, pursuant to Section 17.2(a) of the Securities Regulation Code (SRC), the Company is not required to file the reportsrequired under Section 17 of the SRC.

29. Contingencies and Commitments

Contingencies

a. Tax Assessment Case. The Company filed a petition for review with the Court of Tax Appeals(CTA) on October 12, 2009. This is to contest the Final Decision on Disputed Assessmentissued by the BIR assessing the Company for deficiencies on income tax, and expandedwithholding tax for the year ended March 31, 2003 amounting to ₱124.3 million. OnFebruary 20, 2012, the Company rested its case and its evidence has been admitted into therecords.

On June 27, 2012, the BIR rested its case and has formally offered its evidence. OnApril 17, 2013, the CTA issued a Decision which granted the Company’s petition for reviewand ordered the cancellation of the BIR’s assessment since its right to issue an assessment forthe alleged deficiency taxes had already prescribed. On May 16, 2013, the Company receiveda copy of the Commissioner of Internal Revenue’s (CIR) Motion for Reconsideration datedMay 8, 2013. The Company filed its Comment to CIR’s Motion for Reconsideration onJune 13, 2013. The CTA issued a resolution dated July 17, 2013 denying the CIR’s Motionfor Reconsideration. On August 22, 2013, the CIR filed its Petition for Review datedAugust 16, 2013, with the CTA En Banc. On October 29, 2013, the Company filed itsComment to the CIR’s Petition for Review. The CTA En Banc deemed the case submitted fordecision on May 19, 2014, considering the CIR’s failure to file its memorandum. OnMarch 24, 2015, the CTA En Banc affirmed the decision dated April 17, 2013 and theresolution dated July 17, 2013 and granted the Company’s Petition for Review and ordered thecancellation of the BIR assessment for the fiscal year ending March 31, 2003. On April 21,2015, the CIR filed a Motion for Reconsideration with the CTA En Banc. On July 3, 2015, theCompany filed its Comment on the Motion for Reconsideration. On September 2, 2015, theCTA En Banc denied the CIR’s Motion for Reconsideration. On October 30, 2015, the CIRfiled a Petition for Review with the Supreme Court. On January 26, 2016, theCompany received a notice from the Supreme Court requiring it to file its Comment on thePetition for Review filed by the CIR. On February 5, 2016, the Company filed a Motion forExtension of Time to File Comment on the Petition for Review requesting an additional periodof twenty (20) days from February 5, 2016, or until February 25, 2016, within which to filethe Comment. On February 25, 2016, the Company filed another Motion for Extension ofTime to File Comment on the Petition for Review requesting an additional period of fifteen(15) days from February 25, 2016, or until March 11, 2016, within which to file the Comment.On March 11, 2016, the Company, through its counsel, filed its Comment on the Petition. On

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October 27, 2016, STI ESG received a notice from the Supreme Court in which the Court,inter alia, required the CIR to reply to STI ESG's Comment (to the Petition for Review) withinten (10) days from receipt of notice. On November 25, 2016, the CIR filed its reply to theCompany’s comment. As of the date of the report, the case is pending resolution by theSupreme Court.

b. Labor Case. A former employee filed a Petition with the Supreme Court after the Court ofAppeals denied the former employee’s claims and rendered prior decisions in favor of theCompany. On August 13, 2014, the Company received the Supreme Court’s decision datedJuly 9, 2014 annulling the decision of the Court of Appeals and ordered that the Companyreinstate the former employee to her former position and pay the exact salary, benefits,privileges and emoluments which the current holder of the position is receiving and should bepaid backwages from the date of the former employee’s dismissal until fully paid, with legalinterest. On August 28, 2014, the Company filed its Motion for Reconsideration and onNovember 17, 2014, the Supreme Court issued a resolution which denied with finality theCompany’s Motion for Reconsideration. On January 5, 2015, the Company filed an OmnibusMotion and requested to move the case for review by the Supreme Court En Banc. OnMay 22, 2015, the Company received a notice from the Supreme Court which denied theCompany’s Omnibus Motion. As a result of the decision, the Company recognized provisionamounting to ₱3.0 million representing the estimated compensation to be made to the formeremployee.

On October 20, 2015, a Bank Order to release was issued to one of the Company’s depositorybanks for the release of the garnished amount of ₱2.2 million. The bank released thegarnished amount to the National Labor Relations Commission (NLRC).

The garnished amount was put on hold for fifteen (15) days because of the filing of theCompany’s Petition questioning, among others, the Writ of Execution issued by the laborarbiter, which was docketed as LER-CN-10291-15.

While the Petition was pending for resolution by the NLRC and without any injunction orderbeing issued by the said Commission, the garnished amount of ₱2.2 million was released tothe former employee.

On March 1, 2016, the former employee filed an Entry of Appearance withManifestation/Motion for Computation dated February 24, 2016. In the said motion, theformer employee sought for computation of her backwages, inclusive of monetary equivalentof leaves and 13th month pay from July 22, 2004 until the same is actually paid. In addition,the former employee waived the reinstatement aspect of the March 31, 2006 Decision of laborarbiter, and sought the payment of separation pay.

As mentioned in an earlier paragraph, on October 19, 2015 the Company filed a Petition withthe NLRC, docketed as LER-CN-10291-15, to (1) annul the Writ of Execution issued by laborarbiter for the amount of ₱2.2 million, and (2) order the payment of separation pay in favor ofthe former employee instead of reinstatement as Chief Operating Officer of STI-Makati.

In the said Petition, the Company asserted that the Writ of Execution was issued with unduehaste when there were pending issues to be resolved by the labor arbiter with respect to thecomputation of the judgment award of the former employee. In addition, the labor arbiter,cannot order the former employee to be reinstated as Chief Operating Officer of STI-Makatibecause said position no longer exists. The Company averred that an order of separation payin lieu of reinstatement should be issued in favor of the former employee.

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On October 28, 2015, the Company filed another Petition with the NLRC, which sought toinhibit the labor arbiter from continuing the execution proceedings for the former employee’sjudgment award. In the said Petition, the Company alleged that the actions of the labor arbitershowed partiality and bias in favor of the former employee.

On October 29, 2015, the Company filed a Motion to Consolidate with the NLRC. In the saidMotion, the Company moved that the aforesaid Petitions would be consolidated and resolvedby the same Division of the NLRC.

The former employee, thru her new counsel, filed two (2) Entry of Appearance with Motionfor Leave (To Admit Attached Answer with Comment/Opposition) for the two (2) Petitions ofthe Company. In the said Comment/Opposition, the former employee averred that (a) the Writof Execution was issued pursuant to the Supreme Court’s Decision dated July 9, 2014 and (b)the acts of labor arbiter were above-board.

On February 29, 2016, the Sixth Division of the NLRC issued a Decision wherein it, amongothers, nullified the Writ of Execution, and ordered the inhibition of the labor arbiter. In thesame Decision, the Sixth Division of the NLRC also set a guide for the enforcement of thejudgment award in favor of the former employee, which provides, among others, that thecomputation of the backwages of the former employee shall be from May 18, 2004 until October30, 2006.

On March 29, 2016, the Company received the former employee’s Motion forReconsideration. In the Motion for Reconsideration, the former employee questioned theguide issued by the NLRC and the inhibition of the labor arbiter.

On April 19, 2016, the Company filed a Motion for Leave (To Admit Comment and/orOpposition with Manifestation). In the Comment and/or Opposition, the Company defendedthe guide issued by the Sixth Division of the NLRC and the inhibition on the labor arbiter by,among others, asserting that the former employee’s grounds for reconsideration of theDecision are based on misleading allegations, and misquoted orders and pleadings of theCorporation. The Company also manifested to that (1) it would no longer seek the cancellationof the Writ of Execution provided that any legal effect thereof on the judgment award shall berecognized and applied therein, and (2) the appropriate labor arbiter commence with thecomputation of the separation pay in lieu of reinstatement.

On July 1, 2016, the Company received the Resolution of the NLRC, which denied the formeremployee’s Motion for Reconsideration.

On September 6, 2016, the Company received the Petition for Certiorari filed by the formeremployee to the Court of Appeals wherein she questioned the Decision dated February 29,2016 and Resolution dated June 28, 2016 issued by the NLRC. In the Petition, the formeremployee reiterated all her grounds in the Motion for Reconsideration filed to the NLRC.

On September 26, 2016, the Company filed its Comment/Opposition Ad Cautelam. In the saidComment/Opposition, the Company reiterated its arguments raised against the formeremployee’s Motion for Reconsideration. In addition, the Company raised that (a) the issue onannulment of the Writ of Execution should be deemed moot because the Company has alreadymanifested that it would no longer enforce said decision, and (b) the former employee shouldshow proof that the Motion for Reconsideration was actually filed to the NLRC within theperiod allowed by law or otherwise, the Petition should be denied due to non-exhaustion ofadministrative remedies.

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Upon filing of extension to file Reply to the Comment/Opposition Ad Cautelam of theCompany, the former employee filed her Reply thereto on October 19, 2016.

On October 24, 2016, the Court of Appeals referred the case for mediation with the PhilippineMediation Center-Court of Appeals. Based on the relevant rules, the mediator assigned in theinstant case has an extendible thirty (30) days to complete the mediation proceeding. Shouldthe parties fail to settle the instant case, the case shall be referred to the Court of Appeals forresolution.

Both parties attended the mediation hearing wherein both parties provided their respectivesettlement amount wherein the former employee rejected the last proposal made by STI ESG.Considering that both parties failed to amicably settle, the mediation proceedings wasterminated.

On April 11, 2017, STI ESG received the Court of Appeals’ Resolution, which required bothparties to file their respective Memoranda within a non-extendible period of fifteen (15) daysfrom receipt thereof or until April 26, 2017.

In compliance with the aforesaid Resolution, the Company filed its Memorandum on April 26,2017.

On June 6, 2017, STI ESG received the Court of Appeal’s Decision on the former employee’sPetition for Certiorari. In the Decision, the Court of Appeals determined that there is no needto resolve the issue on the nullification of the Partial Writ of Execution because both partiesagreed that the funds garnished by virtue of said Writ to the former employee shall beconsidered as partial satisfaction of her judgment award.

The Court of Appeals likewise clarified that the issue on the former employee’s waiver ofreinstatement pending appeal should have been resolved by the new labor arbiter, and not theNLRC. Contrary to the former employee’s assertion that the former labor arbiter resolved thesaid issue, the Court of Appeals took into consideration that the NLRC validly ordered the re-raffle of the case to a new labor arbiter who should resolve all pending incidents and issues.

Without making any findings and/or rulings contrary to STI ESG’s claim that the formeremployee waived her reinstatement pending appeal on October 2006 and consequentlyinvalidated her assertion that her backwages should be computed from May 2004 until presentday, the Court of Appeals affirmed the re-raffle of the execution proceedings of the formeremployee’s judgment award to a new labor arbiter to make an independent determination ofall pending incidents and issues.

Considering the aforesaid Decision did not prejudice STI ESG’s position, STI ESG decided torefer all pending issues on the execution of the judgment award of the former employee,including the waiver of backwages pending appeal, to the new labor arbiter.

To date, there is no notice that the case has already been referred to the new labor arbiterand/or filing of any Motion for Reconsideration by the former employee on the aforesaidDecision.

c. Specific Performance Case. STI College Cebu, Inc. (STI Cebu) was named defendant in acase filed by certain individuals for specific performance and damages. In their Complaint, thePlaintiffs sought the execution of a Deed of Absolute Sale over a parcel of land situated inCebu City on the basis of an alleged perfected contract to sell. On March 15, 2016, the

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Company, as the surviving corporation in the merger between the Company and STI Cebu,filed a Motion to Dismiss. On March 31, 2016, the Company received the Plaintiffs’Comment/Opposition to Motion to Dismiss with Motion to Declare Defendant in Default(“Motion”). On April 8, 2016, the Court required the Company and the Plaintiffs to file theirrespective Position Papers to the Motion to Dismiss and the Plaintiffs’ Motion until April 13,2016. On April 12, 2016, the Company received the Plaintiff’s Position Paper. The Company,on April 13, 2016, filed its Position Paper.

On April 14, 2016, the Company filed a Manifestation with an attached Position Paper.

On August 2, 2016, the Company received the Plaintiffs’ Motion to Resolve, which seeks forthe resolution of all pending incidents.

On August 11, 2016, the Company filed a Comment dated August 10, 2016 to the Plaintiffs’Motion to Resolve. In the Comment, the Company also moved for the resolution of allpending incidents including the Motion to Dismiss filed by the Company, and reiterated thepropriety of the dismissal of the instant case.

On August 12, 2016, the hearing on the Motion to Resolve proceeded wherein the Companyreiterated its Motion(s) to Dismiss, and moved for the resolution of all pending incidents in theinstant case. The Trial Court then ordered that all of the pending incidents shall be resolved.

On February 28, 2017, the Defendants received the Resolution of the Trial Court wherein itdenied the Defendants’ Motion to Dismiss.

On March 6, 2017, the Defendants filed their Joint Motion for Reconsideration Ad Cautelamin relation to the Resolution.

On March 14, 2017, the Defendants received the Plaintiffs’ Comment/Opposition to JointMotion Reconsideration Ad Cautelam and/or Motion to Declare Defendants in Default dated11 March 2017 (“Comment with Motion”). In the Comment with Motion, Plaintiffs allegedthat the Defendants should have filed their Answer instead of the Joint Motion forReconsideration Ad Cautelam after the denial of their Motions to Dismiss. Considering thatthe Defendants did not file their Answer, Plaintiffs moved to declare the Defendants indefault.

On March 17, 2017, the Defendants filed and served in open court their Reply and/orComment/Opposition Ad Cautelam (“Reply”) to the Plaintiffs’ Comment with Motion. In theReply, the Defendants asserted that under the relevant provisions of the Rules of Court andjurisprudence, a motion for reconsideration is allowed to be filed after the denial of a motionto dismiss. Consequently, the filing of the Answer is deemed suspended while the JointMotion for Reconsideration Ad Cautelam is pending for resolution.

Upon receipt of the Plaintiffs’ Reply on April 3, 2017, the Defendants filed the JointRejoinder wherein they asserted that the Reply is a reiteration of the Plaintiffs’ baselessargument that a motion for reconsideration is prohibited.

With the filing of the aforesaid pleadings, the Joint Motion and Plaintiffs’ Motion to DeclareDefendants in Default are submitted for resolution.

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d. Complaint for Damages filed by GATE (formerly STI-College Santiago, Inc.). GlobalAcademy of Technology and Entrepreneurship, Inc. (“GATE”) filed a complaint for Damagesagainst STI ESG for its non-renewal of the Licensing Agreement despite the former’s allegedcompliance of the latter’s audit recommendations. On the basis of such alleged invalid non-renewal of the Licensing Agreement, GATE seeks for (a) moral damages in the amount of₱0.5 million (b) exemplary damages in the amount of ₱0.5 million and (c) attorney’s fees inthe amount of 15% of the amount to be awarded and ₱3.0 thousand per court appearance.

On January 23, 2017, STI ESG filed its Motion to Dismiss Ad Cautelam. In the said Motion,STI ESG asserted that the dismissal of the case was warranted on the following grounds; (a)lack of jurisdiction over STI ESG due to improper service of Summons to a Human RelationsOfficer (“HR Officer”), and (b) failure to state a cause of action because GATE has no rightfor the renewal of the Licensing Agreement when (i) the same already expired and (ii) itclearly provides that it may be renewed by mutual agreement of the parties. The Motion toDismiss Ad Cautelam was set for hearing on February 3, 2017.

On February 3, 2017, STI ESG received GATE’s Comment /Opposition. In the saidComment/Opposition, GATE alleged that (a) the HR Officer was alleged authorized by its inhouse counsel to receive the Summons, and (b) the decision of STI ESG not to renew theLicensing Agreement was not based on its mutual agreement provision but the violations ofGATE. Consequently, such decision of STI ESG to cancel the Licensing Agreement wasalleged in bad faith.

Upon the filing of all the pleadings in relation to the Motion to Dismiss Ad Cautelam of STIESG, the Trial Court issued its Resolution dated May 16, 2017, which denied the said Motion.The Trial Court also required STI ESG to file its Answer to the Complaint within the non-extendible fifteen (15) days from receipt of said Resolution on May 25, 2017 or until June 9,2017.

On June 9, 2017, STI ESG filed its Answer to the Complaint. In the Answer, STI ESGreiterated its position that GATE has no cause of action against it because its decision not torenew the Licensing Agreement is in accordance with contractual stipulations therein that itsrenewal is upon mutual agreement of both parties. Considering the effectivity period of theLicensing Agreement expired on March 31, 2016 without being renewed by both parties,GATE cannot claim any damages for STI ESG’s lawful exercise of its rights under theLicensing Agreement.

On June 19, 2017, the Trial Court issued its Order referring the parties to Court-AnnexedMediation on July 14, 2017.

Both parties are required to participate in the said mediation hearing. Should the parties fail toamicably settle the instant case, the case shall undergo Judicial Dispute Resolution before theTrial Court as part of the pre-trial proceedings.

e. Criminal Case. A complaint for qualified theft was filed by the Company against its formerschool accounting supervisor and acting school accountant (“former supervisor/accountant”).In the complaint, the Company alleged that said former supervisor/accountant manipulated thepayroll registers of STI College Global City by including the name of a former facultymember of STI College Global City in the payroll registers and placing a corresponding salaryand 13th month pay beside said faculty member’s name. The salary of said former facultymember was deposited in a bank account belonging to the former supervisor/accountant. The

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total amount deposited to the bank account of the former supervisor/accountant through thisscheme amounted to ₱0.2 million.

The complaint for qualified theft was filed with Office of the City Prosecutor of Taguig City.Summons to the former supervisor/accountant was returned undelivered despite the Companyproviding additional addresses of the former supervisor/accountant where the summons couldbe served.

After the former supervisor/accountant failed to appear on two preliminary investigations, thecomplaint was submitted for resolution.

On September 8, 2016, STI ESG filed an Ex-Parte Motion for Early Resolution to resolvethe case pointing out that more than sixteen (16) months has elapsed since the matter wassubmitted for resolution.

To date, there is no resolution issued by the Office of the City Prosecutor of Taguig City.

f. Due to the nature of the Company’s business, it is involved in various legal proceedings, bothas plaintiff and defendant, from time to time. The majority of outstanding litigation involvesillegal dismissal cases under which faculty members have brought claims against theCompany by reason of their faculty contract. Except as discussed in (b), (c), (d) and (e), theCompany is not engaged in any legal or arbitration proceedings (either as plaintiff ordefendant), including those which are pending or known to be contemplated and its BOD hasno knowledge of any proceedings pending or threatened against the Company or itsfranchisees or any facts likely to give rise to any litigation, claims or proceedings which mightmaterially affect its financial position or business. Management and its legal counsels believethat the Company has substantial legal and factual bases for its position and is of the opinionthat losses arising from these legal actions and proceedings, if any, will not have a materialadverse impact on the Company’s financial position and results of operations.

g. The Company is likewise contingently liable for lawsuits or claims filed by third parties,including labor-related cases, which are pending decision by the courts, the outcome of whichare not presently determinable.

Management and their legal counsels believe that the outcome of these cases will not have asignificant impact on the parent company financial statements.

Commitments

a. Financial Commitments

The Company has a ₱65.0 million domestic bills purchase lines from various local banksspecifically for the purchase of local and regional clearing checks. Interest on drawdown fromsuch facility is waived except when drawn against returned checks, to which the interest shallbe the prevailing lending rate of such local bank. This facility is substantially on a clean basisexcept for a ₱5.0 million line which calls for the surety of a major shareholder.

b. Capital Commitments

As at March 31, 2017, the Company has contractual commitments and obligations for theconstruction of classrooms and faculty rooms in STI Batangas and for the renovation works inSTI Novaliches aggregating ₱38.8 million of which ₱24.5 million has been paid in 2017.

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As at March 31, 2016, the Company has contractual commitments and obligations for theconstruction of the STI Las Piñas campus aggregating ₱290.0 million. Unpaid balances as atMarch 31, 2017 and 2016 amounted to ₱16.7 million and ₱96.8 million, respectively.

The Company, as an educational institution, is subject to CHED Memorandum Order No. 13,Series of 1998, otherwise known as the “Guidelines on the Procedure to be Followed byHigher Education Institutions (HEIs) Intending to Increase their Tuition Fees, EffectiveBeginning SY 1998-1999,” which states that 70.00% of the proceeds derived from the tuitionfee increase for the current school year should be used for the payment of increase in salariesand wages, allowances and other benefits of its teaching and non-teaching personnel and otherstaff, except those who are principal stockholders of the HEIs.

30. Financial Risk Management Objectives and Policies

The principal financial instruments of the Company comprise cash and cash equivalents andinterest-bearing loans and borrowings. The main purpose of these financial instruments is to raiseworking capital and major capital investment financing for the Company’s school operations. TheCompany has various other financial assets and liabilities such as receivables, accounts payableand other current liabilities which arise directly from its operations.

The main risks arising from the Company’s financial instruments are liquidity risk, credit risk andinterest rate risk. The Company’s BOD and management reviews and agrees on the policies formanaging each of these risks as summarized as follows.

Liquidity RiskLiquidity risk arises from the possibility that the Company may encounter difficulties in raisingfunds to meet its currently maturing commitments. The Company’s liquidity profile is managed tobe able to finance its operations and capital expenditures and other financial obligations. To coverits financing requirements, the Company uses internally-generated funds and interest-bearingloans and borrowings. As part of its liquidity risk management program, the Company regularlyevaluates the projected and actual cash flow information and continuously assesses conditions inthe financial markets for opportunities to pursue fund-raising initiatives.

Any excess funds are primarily invested in short-dated and principal-protected bank products thatprovide flexibility of withdrawing the funds anytime. The Company regularly evaluates availablefinancial products and monitors market conditions for opportunities to enhance yields atacceptable risk levels.

The Company’s current liabilities are mostly made up of trade liabilities with a 30 to 60-daypayment terms, current portion of interest-bearing loans and borrowings that are expected tomature within one year after reporting date. On the other hand, the biggest components of theCompany’s current assets are cash and cash equivalents, receivables from students and franchiseesand advances to subsidiaries, associates and joint ventures with credit terms of 30 days.

As at March 31, 2017 and 2016, the Company’s current assets amounted to ₱3,251.6 million and₱596.2 million respectively, while current liabilities amounted to ₱1,250.0 million and₱651.4 million, respectively.

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As part of the Company’s liquidity risk management program, management regularly evaluatesthe projected and actual cash flow information. In relation to the Company’s interest-bearingloans and borrowings, the debt service coverage ratio, based on the financial statements of theCompany and its subsidiaries, is also monitored on a regular basis. The debt service coverageratio is equivalent to the consolidated EBITDA divided by total principal and interests due for thenext twelve months. The Company monitors its debt service coverage ratio to keep it at a levelacceptable to the Company and the lender bank. The Company’s policy is to keep the debt servicecoverage ratio not lower than 1.05:1.

EBITDA is defined as earnings before provision for income tax, interest expense, interest income,depreciation and amortization, effect of derecognition of a subsidiary, equity in net earnings ofassociates and joint ventures and nonrecurring gains (gain on exchange of land and excess of fairvalues of net assets acquired over acquisition cost from a business combination).

The tables below summarizes the maturity profile of the Company’s financial assets held forliquidity purposes and other financial liabilities based on undiscounted contractual payments.

2017

Not Yet DueLess than2 Months

2 to 3Months

3 to 12Months

More than1 Year Total

Financial AssetsLoans and receivables: Cash and cash equivalents ₱2,756,640,423 ₱– ₱– ₱– ₱– ₱2,756,640,423 Receivables* 111,735,602 51,332,463 13,868,114 107,031,164 – 283,967,343 Rental deposits (included as

part of the “Goodwill,intangible and othernoncurrent assets”account) – – – – 32,632,228 32,632,228

AFS financial assets – – – – 30,097,984 30,097,984₱2,868,376,025 ₱51,332,463 ₱13,868,114 ₱107,031,164 ₱62,730,212 ₱3,103,337,978

Financial LiabilitiesOther financial liabilities: Bonds payable Principal ₱– ₱– ₱– ₱– ₱3,000,000,000 ₱3,000,000,000 Interest – – – 178,905,220 1,230,271,080 1,409,176,300 Interest-bearing loans and

borrowings Principal – – – 585,800,000 734,400,000 1,320,200,000 Interest – – – 38,777,000 79,142,000 117,919,000 Accounts payable and other

current liabilities** 118,793,119 48,275,217 3,726,048 429,126,273 – 599,920,657 Obligations under

finance lease Principal – – – 4,597,397 6,446,055 11,043,452 Interest – – – 576,108 484,811 1,060,919

Other noncurrent liabilities*** – – – – 59,089,320 59,089,320₱118,793,119 ₱48,275,217 ₱3,726,048 ₱1,237,781,998 ₱5,109,833,266 ₱6,518,409,648

2016


2 to 3Months

3 to 12Months


Financial AssetsLoans and receivables: Cash and cash equivalents ₱320,720,903 ₱– ₱– ₱– ₱– ₱320,720,903 Receivables* 19,444,840 33,163,063 9,740,445 65,560,285 50,648,475 178,557,108 Rental deposits (included as part

of the “Goodwill, intangibleand other noncurrent assets”account) – – – – 30,232,015 30,232,015

AFS financial assets – – – – 29,250,864 29,250,864₱340,165,743 ₱33,163,063 ₱9,740,445 ₱65,560,285 ₱110,131,354 ₱558,760,890

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2016


2 to 3Months

3 to 12Months


Financial LiabilitiesOther financial liabilities: Interest-bearing loans and

borrowings Principal P=– P=– P=– P=100,800,000 P=775,200,000 P=876,000,000 Interest – – – 41,574,341 118,517,183 160,091,524 Accounts payable and other

current liabilities** 282,089,605 11,331,764 24,589,586 154,549,566 – 472,560,521 Obligations under finance lease Principal – – – 4,659,752 5,849,214 10,508,966 Interest – – – 510,222 329,509 839,731

Other noncurrent liabilities*** – – – – 8,927,289 8,927,289₱282,089,605 ₱11,331,764 ₱24,589,586 ₱302,093,881 P=908,823,195 ₱1,528,928,031

** Excluding advances to officers and employees amounting to ₱17.2 million and ₱17.5 million as at March 31, 2017 and 2016, respectively.** Excluding government and other statutory liabilities amounting to ₱21.2 million and ₱38.3 million as at March 31, 2017 and 2016, respectively.***Excluding advance rent and deferred lease liability amounting to ₱41.2 million and ₱20.3 million as at March 31, 2017 and 2016, respectively.

The Company’s current ratios are as follows:

2017 2016Current assets ₱3,251,645,775 ₱596,153,900Current liabilities 1,249,978,463 651,372,223Current ratios 2.60:1.00 0.92:1.00

Credit RiskCredit risk is the risk that the Company will incur a loss arising from students, franchisees or othercounterparties that fail to discharge their contractual obligations. The Company manages andcontrols credit risk by setting limits on the amount of risk that the Company is willing to acceptfor individual counterparties and by monitoring expenses in relation to such limits.

It is the Company’s policy to require the students to pay all their tuition and other school feesbefore they can get their report cards and other credentials. In addition, receivable balances aremonitored on an ongoing basis with the result that the Company’s exposure to bad debts is notsignificant.

With respect to credit risk arising from the other financial assets of the Company, which comprisecash and cash equivalents and AFS financial assets, the Company’s exposure to credit risk arisesfrom default of the counterparty, with a maximum exposure equal to the carrying amount of theseinstruments. At financial reporting date, there is no significant concentration of credit risk.

Credit Risk Exposures. The table below shows the maximum exposure to credit risk for thecomponents of the parent company statements of financial position:

2017 2016Gross

MaximumExposure(1)

NetMaximum

Exposure(2)

GrossMaximum

Exposure(1)

Net MaximumExposure(2)

Financial AssetsLoans and receivables: Cash and cash equivalents

(excluding cash on hand) ₱2,756,101,131 ₱2,739,601,131 ₱320,181,811 ₱316,681,811 Receivables* 283,967,343 283,967,343 178,557,108 178,557,108 Rental deposits** 32,632,228 32,632,228 30,232,015 30,232,015AFS financial assets 30,097,984 30,097,984 29,250,864 29,250,864

₱3,102,798,686 ₱3,086,298,686 ₱558,221,798 ₱554,721,798*Excluding advances to officers and employees amounting to ₱17.2 million and ₱17.5 million as at March 31, 2017 and 2016, respectively.**Included as part of “Prepaid expenses and other current assets” and “Goodwill, intangible and other noncurrent assets” account (1) Gross financial assets before taking into account any collateral held or other credit enhancements or offsetting arrangements.(2) Gross financial assets after taking into account any collateral held or other credit enhancements or offsetting arrangements or insurance in case of

bank deposits.

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The credit quality of neither past due nor impaired financial assets were determined as follows:

a. Cash and cash equivalents. These financial assets are classified based on the nature of thecounterparty and the Company’s internal rating system. Cash and cash equivalents are held bybanks that have good reputation and low probability of insolvency.

b. Receivables. These are current receivables with no default in payment.

c. Rental deposits. These financial assets are classified as high grade since the counterparties arenot expected to default in settling their obligations.

The table below shows the aging analysis of financial assets that are past due but not impaired:

2017Neither

Past Due norImpaired

Past Due but not Impaired31 to

60 DaysMore than

60 Days Impaired TotalLoans and receivables: Cash and cash equivalents

(excluding cash on hand) ₱2,756,101,131 ₱– ₱– ₱– ₱2,756,101,131 Receivables* 163,068,064 13,868,114 107,031,164 56,818,837 340,786,179 Rental deposits (included as part

of the “Goodwill, intangibleand other noncurrent assets”account) 32,632,228 – – – 32,632,228

AFS financial assets 30,097,984 – – – 30,097,984₱2,981,899,407 ₱13,868,114 ₱107,031,164 ₱56,818,837 ₱3,159,617,522

2016Neither

Past Due norImpaired

Past Due but not Impaired31 to

60 DaysMore than

60 Days Impaired TotalLoans and receivables: Cash and cash equivalents

(excluding cash on hand) ₱320,181,811 ₱– ₱– ₱– ₱320,181,811 Receivables* 19,444,840 33,163,063 125,949,205 60,430,627 238,987,735 Rental deposits (included as part

of the “Goodwill, intangibleand other noncurrent assets”account) 30,232,015 – – – 30,232,015

AFS financial assets 29,250,864 – – – 29,250,864₱399,109,530 ₱33,163,063 ₱125,949,205 ₱60,430,627 ₱618,652,425

** Excluding advances to officers and employees amounting to ₱17.2 million and ₱17.5 million as at March 31, 2017 and 2016, respectively.

Interest Rate Risk. Interest rate risk is the risk that the fair value or future cash flows of a financialinstrument will fluctuate because of changes in market interest rates. Fixed rate financialinstruments are subject to fair value interest rate risk while floating rate financial instruments aresubject to cash flow interest rate risk. The Company’s interest rate risk management policycenters on reducing the overall interest expense and exposure to changes in interest rates. Changesin market interest rates relate primarily to the Company’s interest-bearing loans and borrowingswith floating interest rate as it can cause a change in the amount of interest payments.

The Company’s exposure to interest rate risk also includes its cash and cash equivalents balance.Interest rates for the Company’s cash deposits are at prevailing interest rates. Due to themagnitude of the deposits, significant change in interest rate may also affect the parent companystatements of comprehensive income.

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The following table demonstrates the sensitivity, to a reasonably possible change in interest rates,with all other variables held constant, of the parent company statements of comprehensive incomeand parent company statements of changes in equity as at March 31, 2017 and 2016:

Increase/decrease inBasis Points (bps)

Effect on Income BeforeIncome Tax

2017 +100 bps (37,752,000)-100 bps 37,752,000

2016 +100 bps (₱8,760,000)-100 bps 8,760,000

Capital Risk Management PolicyThe Company’s objectives when managing capital are to provide returns for stockholders andbenefits for other stakeholders and to maintain an optimal capital structure to reduce the cost ofcapital.

The Company manages its capital structure and makes adjustments to it in light of changes ineconomic conditions. The Company is not subject to externally imposed capital requirements.

The Company monitors capital using the debt-to-equity ratio, which is computed as the total ofcurrent and noncurrent liabilities, net of unearned tuition and other school fees, divided by totalequity. The Company monitors its debt-to-equity ratio to keep it at a level acceptable to theCompany and the lender bank. The Company’s policy is to keep the debt-to-equity ratio at a levelnot exceeding 1.5:1.

The Company considers its equity contributed by stockholders as capital.

2017 2016Capital stock ₱3,081,871,859 ₱3,081,871,859Additional paid-in capital 379,937,290 379,937,290Retained earnings 1,840,342,663 2,142,047,044

₱5,302,151,812 ₱5,603,856,193

The Company’s debt-to-equity ratios are as follows:

2017 2016Total liabilities* ₱4,970,300,424 ₱1,465,010,457Total equity 5,336,128,924 5,608,360,004Debt-to-equity ratio 0.93:1.00 0.26:1.00

*Excluding unearned tuition and other school fees

The Company’s asset-to-equity ratios shown below

2017 2016Total assets ₱10,333,071,400 ₱7,097,840,082Total equity 5,336,128,924 5,608,360,004Asset-to-equity ratio 1.94:1.00 1.27:1.00

No changes were made in the objectives, policies or processes in 2017 and 2016.

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31. Fair Value Information of Financial Instruments

The following tables set forth the carrying amounts and estimated fair values of consolidatedfinancial assets and liabilities recognized as at March 31, 2017 and 2016. There are no materialunrecognized financial assets and liabilities as at March 31, 2017 and 2016.

2017CarryingAmount Fair Value Level 1 Level 2 Level 3

Financial AssetsLoans and receivables: Rental deposits ₱32,632,228 ₱32,368,877 ₱– ₱– ₱32,368,877AFS investments - quoted 3,808,240 3,808,240 3,808,240 – –

₱36,440,468 ₱36,177,117 ₱3,808,240 ₱– ₱32,368,877

Financial LiabilitiesOther financial liabilities at amortized cost -

Obligations under finance lease ₱11,043,452 ₱6,965,661 ₱– ₱– ₱6,965,661Refundable deposits 19,235,201 17,369,983 – – 17,369,983

₱30,278,653 ₱24,335,644 ₱– ₱– ₱24,335,644


Financial AssetsLoans and receivables: Rental deposits ₱30,232,015 ₱30,267,761 ₱– ₱– ₱30,267,761AFS investments - quoted 2,961,120 2,961,120 2,961,120 – –

₱33,193,135 ₱33,228,881 ₱2,961,120 ₱– ₱30,267,761


Obligations under finance lease ₱10,508,966 ₱7,508,357 ₱– ₱– P=7,508,357Refundable deposits 10,321,959 9,780,959 – – 9,780,959

₱20,830,925 ₱17,289,316 ₱– ₱– ₱17,289,316

Fair Value of Financial InstrumentsThe following methods and assumptions were used to estimate the fair value of each class offinancial instrument for which it is practicable to estimate such value:

Cash and Cash Equivalents, Receivables and Accounts Payable and Other Current Liabilities.Due to the short-term nature of transactions, the fair values of these instruments approximate thecarrying amounts as of financial reporting date.

Rental Deposits. The fair values of these instruments are computed by discounting the faceamount using PDST-R2 rate of 2.68%-5.01% and 1.77%-5.04% as at March 31, 2017 and 2016,respectively.

AFS Financial Assets. The fair values of publicly-traded AFS financial assets, classified underLevel 1, are determined by reference to market bid quotes as at financial reporting date. AFSfinancial assets in unquoted equity securities for which no reliable basis for fair valuemeasurement is available are carried at cost, net of impairment.

Interest-bearing Loans and Borrowings. The carrying value approximates its fair value because ofrecent and regular repricing based on market conditions.

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Obligation under Finance Lease. The fair values of obligations under finance are computed basedon discounted present value of lease payments using 2.42%-4.26% and 1.76%-9.50% as atMarch 31, 2017 and 2016 respectively.

Refundable Deposits. The fair values of obligations under finance are computed based ondiscounted present value of lease payments using 2.82%-4.25% and 2.93%-3.46% as at March 31,2017 and 2016 respectively.

In 2017 and 2016, there were no transfers between Level 1 and 2 fair value measurements, and notransfers into and out of Level 3 fair value measurements.

32. Notes to the Parent Company Statements of Cash Flows

The Company’s material non-cash investing and financing activities pertain to the following:

a. Acquisition of property and equipment under finance lease recorded under the “Property andequipment” account in the parent company statements of financial position amounting to ₱4.6million and ₱1.6 million in 2017 and 2016, respectively (see Note 8).

b. Unpaid progress billing for construction in-progress amounting to ₱2.4 million and₱14.6 million as at March 31, 2017 and 2016, respectively (see Note 8).

c. Unpaid additions to investment properties for the construction of school buildings to be leasedout amounting to ₱12.0 million and ₱0.9 million in 2017 and 2016, respectively (see Note 9).

d. Uncollected dividends from De Los Santos Medical Center amounting to ₱0.9 million as atMarch 31, 2016 (see Note 11).

e. Unpaid subscriptions payable amounted to ₱15.0 million and ₱32.5 million as atMarch 31, 2017 and 2016, respectively (see Note 14).

f. Unpaid liability related to the derecognition of STI Diamond as a subsidiary amounting to₱60.8 million as at March 2017.

g. Reversal of subscription payable associated with the subscription by STI ESG over MaestroHoldings shares amounting to ₱17.5 million in 2016.

h. Derecognition of the net assets of iAcademy amounting to ₱124.3 million (see Note 17).

33. Events after the Reporting Period

a. On May 18, 2016, STI ESG entered into a Memorandum of Agreement to acquire for₱20.0 million the net assets of an STI franchised school located in Santa Maria, Bulacan. OnMay 31, 2016, STI ESG made an initial deposit of ₱10.0 million for the planned acquisition.On February 8, 2017, STI ESG made an additional deposit of ₱8.0 million.

On April 4, 2017, STI ESG established STI College of Santa Maria, Inc. (“STI Sta. Maria”).On May 23, 2017, STI Sta. Maria entered into a Deed of Assignment with Halili ReyesEducational Institution, Inc. (“HREI”) where HREI assigned, transferred and conveyed in amanner absolute and irrevocable, and free and clear of all liens and encumbrances, to STI Sta.Maria all its rights, title and interest in its assets and liabilities for a price of ₱20.0 million.

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The assignment of the net assets shall retroact to April 1, 2017. On the same date, STI Sta.Maria paid the remaining balance of ₱2.0 million.

b. On April 21, 2017, STI ESG, Mr. Tony Tan Caktiong (TTC), STI Tanauan and InjapInvestments, Inc. (Injap), referred collectively as the Joint Venture Parties, entered into anagreement to transform STI Tanauan into a Joint Venture Company which shall operate afarm-to-table school that offers courses ranging from farm production to food services.

The Joint Venture Parties also agreed to increase STI Tanauan’s authorized capital stock to anamount that will be agreed by the Joint Venture Parties in a separate agreement. As agreed bythe Joint Venture Parties, the increase in the authorized capital stock will be made through STITanauan’s declaration of stock dividends to STI ESG based on STI Tanauan’s unrestrictedretained earnings as of March 31, 2017 and cash payments by the Joint Venture Parties.

Additional amendments shall be made to STI Tanauan’s Articles of Incorporation and By-Laws to implement the intent of the parties under the Joint Venture Agreement.

The equity sharing in the Joint Venture Company will be 60%, 25% and 15% for STI ESG,TTC and Injap, respectively.

On June 21, 2017,in separate meetings , the stockholders and the Board of Directors (BOD)of STI Tanauan approved the increase in the authorized capital stock of the corporation from₱1,000,000 divided into 10,000 shares with a par value of ₱100 to ₱75,000,000 divided into750,000 shares with a par value of ₱100. The increase will be funded through the declarationof stock dividends and cash subscriptions by the shareholders. In the same meeting, thestockholders and the BOD approved the declaration of 150,000 shares as stock dividends withan aggregate par value of ₱15,000,000 to be distributed to stockholders of record as of March31, 2017 based on the unrestricted retained earnings of STI Tanauan as shown in its auditedfinancial statements as of March 31, 2017.

c. On June 27, 2017, the BOD of STI ESG approved the disposition of its 20% stake in MaestroHoldings in whole or in part, subject to compliance with all regulatory requirements for thedisposal of the said shares. The rationale for this disposition is to enable STI ESG to focus onits core business of offering educational services.

d. On July 5, 2017, STI ESG executed a Deed of Absolute Sale with Abacus GlobalTechnovisions, Inc. for the purchase of a parcel of land with an area of 2,873 square meterssituated at Poblacion, City of Lipa, Province of Batangas for a total consideration of₱86.2 million. On the same date, STI ESG executed Deeds of Absolute Sale with AseanCommodity Enterprises for the purchase of two parcels of lot aggregating to 349 squaremeters at Poblacion, City of Lipa, Province of Batangas for a total consideration of₱10.5 million. This will be the site of the new STI Academic Center Lipa (see Note 14).

34. Supplementary Information Required Under Revenue Regulations No. 15-2010

In compliance with the requirements set forth by Revenue Regulations No. 15-2010, the Companyreported and/or paid the following types of taxes for the year:

VATThe Company’s sales are subject to output VAT while its purchases from other VAT-registeredindividuals or corporations are subject to input VAT. The VAT rate is 12.0%.

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Details of the Company’s net sales/receipts, output VAT and input VAT accounts are as follows:

a. Net Receipts and Output VAT declared in the Company’s VAT returns filed forFY 2016-2017.

Net Sales/Receipts

OutputVAT

Taxable Sales:Sale of goods ₱105,271,387 ₱12,632,566Leasing income 191,842,840 23,021,141Others 101,557,524 12,186,903

398,671,751 47,840,610Exempt sales 1,679,149,038 –

₱2,077,820,789 ₱47,840,610

The Company’s exempt sales consist of educational services and sales of textbooks manualswhich are exempt from the imposition of VAT under Sections 109 (H) and (R) of the TaxCode of 1997, as amended.

The Company’s sales that are subject to VAT are reported under the following accounts in theparent company statement of comprehensive income:

ƒ Sale of educational materials and suppliesƒ Rentalƒ Royalty incomeƒ Advisory fees

The Company’s leasing income and other revenues are based on actual collections received,hence, may not be the same per parent company statement of comprehensive income.

b. Input VAT

Balance at April 1 ₱32,285,734Current year’s domestic purchases/payments for:

Capital goods subject to amortization 4,370,964Services lodged under other accounts 52,909,995Goods for resale/manufacture or further processing 68,083,143

Less: Input VAT applied against output VAT 47,840,610

Input vat allocated to exempt sales 30,536,844Balance at March 31 ₱79,272,382

Documentary Stamp TaxDocumentary stamp tax for FY 2016–2017 pertains to the following:

Certificates P=80,661Loans 2,612,441Others 138,132

P=2,831,234

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Other Taxes and LicensesDetails consist of the following in FY 2016–2017:

License and permit fees P=16,236,801Real estate taxes 1,259,872Documentary stamp taxes 2,831,234Others 2,954,531

P=23,282,438

Withholding TaxesDetails of withholding taxes in FY 2016–2017 are as follows:

Withholding taxes on compensation and benefits P=38,403,133Expanded withholding taxes 25,798,334Final withholding taxes 8,230,416

P=72,431,883

Tax Assessments and CasesThe Company received on June 28, 2007 a Final Assessment Notice (FAN) and/or Formal Letterof Demand from the BIR for alleged deficiency income tax, VAT and expanded withholding taxamounting to ₱124.3 million for the fiscal year ending March 31, 2003. The Company filed aprotest disputing the assessment on September 11, 2009. After 180 days, the protest remainedundecided; thus, it was deemed denied. Accordingly, the Company filed a Petition for Review onOctober 12, 2009 with the CTA to appeal the FAN. On February 20, 2012, the Company restedits case and its evidence has been admitted into the records. On June 27, 2012, the BIR rested itscase and has formally offered its evidence. On April 17, 2013, the CTA issued a Decision whichgranted the Company’s petition for review and ordered a cancellation of the said BIR’s assessmentsince the right to issue an assessment for the alleged deficiency taxes had already prescribed. OnMay 16, 2013, the Company received a copy of the Commissioner of Internal Revenue’s (CIR)Motion for Reconsideration dated May 8, 2013. The Company filed its Comment to CIR’sMotion for Reconsideration on June 17, 2013. On August 22, 2013, the CIR filed its Petition forReview dated August 16, 2013, with the CTA En Banc. On October 29, 2013, the Company filedits Comment to the CIR’s Petition for Review. The CTA En Banc deemed the case submitted fordecision on May 19, 2014, considering the CIR’s failure to file its memorandum. On March 24,2015, the CTA En Banc affirmed the decision dated April 17, 2013 and the resolution dated July17, 2013 which granted the Company’s Petition for Review and ordered the cancellation of theBIR assessment for the fiscal year ending March 31, 2003. On April 21, 2015, the CIR filed aMotion for Reconsideration with the CTA En Banc. On June 8, 2015, the Company received acopy of the CTA En Banc’s Resolution dated May 25, 2015 ordering the Company to comment onthe Motion for Reconsideration. On July 3, 2015, the Company filed its Comment on the Motionfor Reconsideration. On September 2, 2015, the CTA En Banc denied the CIR’s Motion forReconsideration. On October 30, 2015, the CIR filed a Petition for Review with theSupreme Court. On January 26, 2016, the Company received a notice from the Supreme Courtrequiring it to file its Comment on the Petition for Review filed by the CIR. On February 5, 2016,the Company filed a Motion for Extension of Time to File Comment on the Petition for Reviewrequesting an additional period of twenty (20) days from February 5, 2016, or until February 25,2016, within which to file the Comment. On February 25, 2016, the Company filed anotherMotion for Extension of Time to File Comment on the Petition for Review requesting anadditional period of fifteen (15) days from February 25, 2016, or until March 11, 2016, withinwhich to file the Comment. On March 11, 2016, the Company, through its counsel, filed itsComment on the Petition. On October 27, 2016, STI ESG received a notice from the Supreme

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Court in which the Court, inter alia, required the CIR to reply to STI ESG's Comment (to thePetition for Review) within ten (10) days from receipt of notice. On November 25, 2016, the CIRfiled its reply to the Company’s comment. As at July 6, 2017, the case is pending resolution bythe Supreme Court.

*SGVFS025579*A member firm of Ernst & Young Global Limited

INDEPENDENT AUDITOR’S REPORT

The Board of Directors and StockholdersSTI Education Services Group, Inc.

Opinion

We have audited the consolidated financial statements of STI Education Services Group, Inc. and itssubsidiaries (the Group), which comprise the consolidated statements of financial position as atMarch 31, 2017 and 2016, and the consolidated statements of income, consolidated statements ofcomprehensive income, consolidated statements of changes in equity and consolidated statements of cashflows for each of the three years in the period ended March 31, 2017, and notes to the consolidatedfinancial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,the consolidated financial position of the Group as at March 31, 2017 and 2016, and its consolidatedfinancial performance and its consolidated cash flows for each of the three years in the period endedMarch 31, 2017 in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for the Auditof the Consolidated Financial Statements section of our report. We are independent of the Group inaccordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics)together with the ethical requirements that are relevant to our audit of the consolidated financialstatements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in ouraudit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinionthereon, and we do not provide a separate opinion on these matters. For each matter below, ourdescription of how our audit addressed the matter is provided in that context.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited


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We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theConsolidated Financial Statements section of our report, including in relation to these matters.Accordingly, our audit included the performance of procedures designed to respond to our assessment ofthe risks of material misstatement of the consolidated financial statements. The results of our auditprocedures, including the procedures performed to address the matters below, provide the basis for ouraudit opinion on the accompanying consolidated financial statements.

Accounting for Investment in an Associate

The Group has a 20% investment in Maestro Holdings, Inc. (Maestro Holdings), an associate, which isaccounted for using the equity method. This matter is significant to our audit because the Group’s equityin net losses of Maestro Holdings and its subsidiaries (Maestro Holdings Group) for the year endedMarch 31, 2017 amounted to P=165.5 million, representing 20% of the Group’s consolidated net income.The Group’s share in the net losses of Maestro Holdings Group is significantly affected by the valuationof pre-need and other reserve liabilities of a subsidiary of Maestro Holdings which involves significantjudgment in the use of assumptions. For the year ended March 31, 2017, the Group’s share in the netchange in the pre-need and other reserve liabilities amounted to P=69.0 million.

The disclosures on the Group’s associates are included in Note 11 to the consolidated financialstatements.

Audit response

Our audit procedures included, among others, obtaining the consolidated financial information of MaestroHoldings Group for the year ended March 31, 2017 and recalculating the Group’s equity in net losses forthe year ended March 31, 2017. For the valuation of pre-need and other reserve liabilities, we involvedour internal specialist in reviewing the methodology and assumptions used by assessing the basis of eachassumption used and by comparing them against the regulatory requirements. We also reviewed theGroup’s disclosure in the consolidated financial statements.

Recoverability of Goodwill

Under PFRS, the Group is required to perform an impairment test on goodwill annually, or morefrequently, if events or changes in circumstances indicate that the carrying value may be impaired. As atMarch 31, 2017, the Group has goodwill attributable to each of the Group’s cash-generating units that areexpected to benefit from the business combination (i.e., each school operation) amounting toP=223.8 million. The Group’s recoverability test of goodwill is significant to our audit because the amountof goodwill is material to the consolidated financial statements. In addition, the assessment processinvolves significant management judgement about future market conditions and estimation based onassumptions such as discount rate, forecasted revenue growth, earnings before interest, taxes, depreciationand amortization (EBITDA) margins and weighted average cost of capital. The related disclosures on theGroup’s goodwill are included in Notes 4 and 14 to the consolidated financial statements.



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Audit response

We obtained an understanding of the Group’s impairment testing process and related controls. Weinvolved our internal specialist to assist us in evaluating the assumptions and methodology used by theGroup in its value-in-use calculation. These assumptions include the discount rate, forecasted revenuegrowth, EBITDA margins and weighted average cost of capital. We reviewed the basis and assumptionsfor estimates of free cash flows, in particular those relating to the forecasted revenue growth and EBITDAmargins, which we compared against the available comparable market data in the published economicforecast as well as relevant industry outlook and historical trends. We tested the parameters used in thedetermination of the discount rate against market data. We also reviewed the Group’s disclosures aboutthose assumptions to which the outcome of the impairment test is most sensitive, specifically those thathave the most significant effect on the determination of the recoverable amount of the goodwill.

Other Information

Management is responsible for the other information. The other information comprises the informationincluded in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Reportfor the year ended March 31, 2017, but does not include the consolidated financial statements and ourauditor’s report thereon. The SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A andAnnual Report for the year ended March 31, 2017 are expected to be made available to us after the date ofthis auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will notexpress any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read theother information identified above when it becomes available and, in doing so, consider whether the otherinformation is materially inconsistent with the consolidated financial statements or our knowledgeobtained in the audits, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date ofthis auditor’s report, we conclude that there is a material misstatement of this other information, we arerequired to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the ConsolidatedFinancial Statements

Management is responsible for the preparation and fair presentation of the consolidated financialstatements in accordance with PFRSs, and for such internal control as management determines isnecessary to enable the preparation of consolidated financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’sability to continue as a going concern, disclosing, as applicable, matters related to going concern andusing the going concern basis of accounting unless management either intends to liquidate the Group or tocease operations, or has no realistic alternative but to do so.



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Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s reportthat includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit conducted in accordance with PSAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these consolidated financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk ofnot detecting a material misstatement resulting from fraud is higher than for one resulting from error,as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override ofinternal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Group’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management.

· Conclude on the appropriateness of management’s use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. Ifwe conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up tothe date of our auditor’s report. However, future events or conditions may cause the Group to ceaseto continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements,including the disclosures, and whether the consolidated financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.We are responsible for the direction, supervision and performance of the audit. We remain solelyresponsible for our audit opinion.



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We communicate with those charged with governance regarding, among other matters, the planned scopeand timing of the audit and significant audit findings, including any significant deficiencies in internalcontrol that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.

From the matters communicated with those charged with governance, we determine those matters thatwere of most significance in the audit of the consolidated financial statements of the current period andare therefore the key audit matters. We describe these matters in our auditor’s report unless law orregulation precludes public disclosure about the matter or when, in extremely rare circumstances, wedetermine that a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Benjamin N.Villacorte

SYCIP GORRES VELAYO & CO.

Benjamin N. VillacortePartnerCPA Certificate No. 111562SEC Accreditation No. 1539-A (Group A), March 3, 2016, valid until March 3, 2019Tax Identification No. 242-917-987BIR Accreditation No. 08-001998-120-2016, February 15, 2016, valid until February 14, 2019PTR No. 5908777, January 3, 2017, Makati City

July 6, 2017


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March 312017 2016

Total Liabilities (Brought Forward) ₱4,823,979,103 ₱1,408,180,255

Equity Attributable to Equity Holdersof the Parent Company

Capital stock (Notes 1 and 19) 3,081,871,859 3,081,871,859Additional paid-in capital 379,937,290 379,937,290Cumulative actuarial gain (Note 25) 35,771,624 7,796,830Unrealized mark-to-market loss on available-for-sale financial assets

(Note 13) (24,569) (871,689)Other equity reserve (Notes 2 and 19) (28,837,819) (6,738,707)Share in associates’:

Unrealized mark-to-market gain on available-for-sale financial assets(Note 11) (49,355,567) 122,577,096Cumulative actuarial loss (Note 11) 733,002 (18,246,722)Other equity reserves (Note 11) 728,649 –

Retained earnings (Note 19) 3,062,770,493 3,539,890,986Total Equity Attributable to Equity Holders of the Parent

Company 6,483,594,962 7,106,216,943

Equity Attributable to Non-Controlling Interests 8,419,916 (4,221,815)Total Equity 6,492,014,878 7,101,995,128

TOTAL LIABILITIES AND EQUITY ₱11,315,993,981 ₱8,510,175,383

See accompanying Notes to the Consolidated Financial Statements.

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STI EDUCATION SERVICES GROUP, INC.(A Private Educational Institution)AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended March 312017 2016 2015

REVENUESSale of services: Tuition and other school fees ₱2,218,526,769 ₱2,054,990,042 ₱1,726,535,593 Educational services (Note 1) 199,155,782 184,262,754 179,365,691 Royalty fees 19,148,926 15,935,475 15,474,118 Others 19,547,436 24,729,695 20,814,326Sale of goods - Sale of educational materials and supplies 146,855,223 70,590,636 58,329,349

2,603,234,136 2,350,508,602 2,000,519,077

COSTS AND EXPENSESCost of educational services (Note 21) 685,074,007 654,788,812 577,874,009Cost of educational materials and supplies sold

(Note 22) 115,422,737 51,534,700 40,728,817General and administrative expenses (Note 23) 928,632,504 977,376,605 909,824,790

1,729,129,248 1,683,700,117 1,528,427,616

INCOME BEFORE OTHER INCOME AND INCOME TAX 874,104,888 666,808,485 472,091,461

OTHER INCOME – netEquity in net earnings (loss) of associates and joint ventures

(Note 11) (158,823,602) 54,026,334 104,909,591Rental income (Note 26 and 28) 101,342,301 62,185,211 30,192,570Interest expense (Note 20) (65,759,044) (50,446,616) (21,594,422)Effect of derecognition of a subsidiary (Note 18) (60,829,455) – –Dividend income (Note 13) 3,251,497 2,830,674 1,470,766Interest income (Note 20) 2,926,266 4,742,536 4,965,120Gain (loss) on: Sale of investment in an associate (Note 11) 154,260 – – Sale of property and equipment (33,838) 5,375 313,000 Exchange of land (Note 14) – – 172,137,167Excess of fair values of net assets acquired over acquisition

cost from a business combination(Note 35) – – 2,091,425

(177,771,615) 73,343,514 294,485,217

INCOME BEFORE INCOME TAX 696,333,273 740,151,999 766,576,678

PROVISION FOR (BENEFIT FROM)INCOME TAX (Note 27)

Current 93,582,485 73,765,249 52,242,185Deferred (88,803) (6,877,612) 10,694,594

93,493,682 66,887,637 62,936,779

NET INCOME (Carried Forward) 602,839,591 673,264,362 703,639,899

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NET INCOME (Brought Forward) ₱602,839,591 ₱673,264,362 ₱703,639,899

OTHER COMPREHENSIVE LOSSItems to be reclassified to profit or loss in subsequent years: Share in associates’ unrealized mark-to-market loss on

available-for-sale financial assets (Note 11) (171,932,663) (302,105,162) (9,403,235) Unrealized mark-to-market gain (loss) on

available-for-sale financial assets (Note 13) 847,120 (339,904) 613,664(171,085,543) (302,445,066) (8,789,571)

Items not to be reclassified to profit or loss in subsequent years: Remeasurement loss on pension liability (Note 25) 31,083,105 (7,042,946) (562,684) Tax effect (Note 27) (3,108,311) 710,887 56,268 Share in associates’ remeasurement gain (loss) on pension

liability (Note 11) 18,979,724 561,443 (3,600,870)46,954,518 (5,770,616) (4,107,286)

OTHER COMPREHENSIVE LOSS, NET OF TAX (124,131,025) (308,215,682) (12,896,857)

TOTAL COMPREHENSIVE INCOME ₱478,708,566 ₱365,048,680 ₱690,743,042

Net Income Attributable ToEquity holders of the Parent Company ₱601,534,658 ₱671,047,817 ₱713,651,120Non-controlling interests 1,304,933 2,216,545 (10,011,221)

₱602,839,591 ₱673,264,362 ₱703,639,899

Total Comprehensive Income (Loss) Attributable ToEquity holders of the Parent Company ₱477,403,633 ₱362,832,135 ₱700,754,263Non-controlling interests 1,304,933 2,216,545 (10,011,221)

₱478,708,566 ₱365,048,680 ₱690,743,042

Basic/Diluted Earnings Per Share on Net IncomeAttributable to Equity Holders of the Parent Company(Note 29) ₱0.20 ₱0.22 ₱0.23


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STI EDUCATION SERVICES GROUP, INC.(A Private Educational Institution)AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED MARCH 31, 2017, 2016 AND 2015

Equity Attributable to Equity Holders of the Parent Company

Capital Stock Additional

CumulativeActuarial

Gain

UnrealizedMark-to-market

Gain (Loss) onAvailable-

for-sale FinancialAssets

Other EquityReserve

Share in Associates’Unrealized

Mark-to-marketGain (Loss) on

Available-for-sale

Financial

Share inAssociates’Cumulative

ActuarialGain (Loss)

Share inAssociates’

OtherEquity

ReservesRetainedEarnings

EquityAttributable

to Non-controlling

(Notes 1 and 19) Paid-in Capital (Note 25) (Note 13) (Note 19) Assets (Note 11) (Note 11) (Note 11) (Note 19) Total Interests Total Equity

Balance at April 1, 2016 P=3,081,871,859 P=379,937,290 P=7,796,830 (P=871,689) (P=6,738,707) P=122,577,096 (P=18,246,722) P=– P=3,539,890,986 P=7,106,216,943 (P=4,221,815) P=7,101,995,128Net income – – – – – – – – 601,534,658 601,534,658 1,304,933 602,839,591Other comprehensive income (loss) – – 27,974,794 847,120 – (171,932,663) 18,979,724 – – (124,131,025) – (124,131,025)Total comprehensive income – – 27,974,794 847,120 – (171,932,663) 18,979,724 – 601,534,658 477,403,633 1,304,933 478,708,566Dividend declaration – – – – – – – – (1,078,655,151) (1,078,655,151) – (1,078,655,151)Acquisition of non-controlling interest

through dilution (Note 19) – – – – (11,336,798) – – – – (11,336,798) 11,336,798 –Effect of derecognition of a subsidiary under common

control (Note 2) – – – – (10,762,314) – – – – (10,762,314) – (10,762,314)Share in associates’ other equity reserves (Note 11) – – – – – – – 728,649 – 728,649 – 728,649

Balance at March 31, 2017 P=3,081,871,859 P=379,937,290 P=35,771,624 (P=24,569) (P=28,837,819) (P=49,355,567) P=733,002 P=728,649 P=3,062,770,493 P=6,483,594,962 P=8,419,916 P=6,492,014,878

Balance at April 1, 2015 P=3,081,871,859 P=379,937,290 P=14,128,889 (P=531,785) (1,899,137) P=424,682,258 (P=18,808,165) P=– P=3,118,843,169 P=6,998,224,378 (P=11,277,930) P=6,986,946,448Net income – – – – – – – – 671,047,817 671,047,817 2,216,545 673,264,362Other comprehensive income (loss) – – (6,332,059) (339,904) – (302,105,162) 561,443 – – (308,215,682) – (308,215,682)Total comprehensive income – – (6,332,059) (339,904) – (302,105,162) 561,443 – 671,047,817 362,832,135 2,216,545 365,048,680Dividend declaration – – – – – – – – (250,000,000) (250,000,000) – (250,000,000)Acquisition of non-controlling interest

through dilution (Note 19) – – – – (4,839,570) – – – – (4,839,570) 4,839,570 –

Balance at March 31, 2016 P=3,081,871,859 P=379,937,290 P=7,796,830 (P=871,689) (P=6,738,707) P=122,577,096 (P=18,246,722) P=– P=3,539,890,986 P=7,106,216,943 (P=4,221,815) P=7,101,995,128

Balance at April 1, 2014 P=3,081,871,859 P=379,937,290 P=14,635,305 (P=1,145,449) (P=1,899,137) P=434,085,493 (P=15,207,295) P=– P=2,655,192,049 P=6,547,470,115 P=1,133,291 P=6,548,603,406Net income – – – – – – – 713,651,120 713,651,120 (10,011,221) 703,639,899Other comprehensive income (loss) – – (506,416) 613,664 – (9,403,235) (3,600,870) – – (12,896,857) – (12,896,857)Total comprehensive loss – – (506,416) 613,664 – (9,403,235) (3,600,870) – 713,651,120 700,754,263 (10,011,221) 690,743,042Dividend declaration – – – – – – – – (250,000,000) (250,000,000) – (250,000,000)Share of non-controlling interest on dividends declared by

subsidiaries – – – – – – – – – – (2,400,000) (2,400,000)

Balance at March 31, 2015 P=3,081,871,859 P=379,937,290 P=14,128,889 (P=531,785) (P=1,899,137) P=424,682,258 (P=18,808,165) P=– P=3,118,843,169 P=6,998,224,378 (P=11,277,930) P=6,986,946,448


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STI EDUCATION SERVICES GROUP, INC.(A Private Educational Institution)AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax ₱696,333,273 ₱740,151,999 ₱766,576,678Adjustments to reconcile income before income tax

to net cash flows:Depreciation and amortization (Notes 21 and 23) 319,508,317 319,744,658 267,437,553Equity in net (earnings) loss of associates and joint ventures (Note 11) 158,823,602 (54,026,334) (104,909,591)Interest expense (Note 20) 65,759,044 50,446,616 21,594,422Effect of derecognition of a subsidiary (Note 18) 60,829,455 – –Movements in pension 3,890,928 3,562,165 3,106,574Dividend income (Note 13) (3,251,497) (2,830,674) (1,470,766)Interest income (Note 20) (2,926,266) (4,742,536) (4,965,120)Provision for impairment loss on investments in and advances to associates and joint ventures (Note 11) 1,643,844 519,414 –Loss (gain) on:

Sale of investment in an associate (Note 11) (154,260) – –Sale of property and equipment (Note 9) 33,838 (5,375) (313,000)Exchange of land (Notes 10 and 14) – – (172,137,167)

Excess of fair values of net assets acquired overacquisition cost from a business combination(Note 35) – – (2,091,425)

Operating income before working capital changes 1,300,490,278 1,052,819,933 772,828,158Decrease (increase) in:

Receivables (111,270,588) (17,114,562) 90,902,219Inventories (80,779,629) (4,804,840) 7,295,876Prepaid expenses and other current assets (25,467,209) 1,652,317 6,577,988

Increase (decrease) in:Accounts payable and other current liabilities (Note 34) 15,716,533 (190,521,868) (149,384,048)Other noncurrent liabilities (Note 34) 27,724,525 31,364,795 –

Net cash generated from operations 1,126,413,910 873,395,775 728,220,193Income and other taxes paid (90,044,686) (65,692,767) (52,591,769)Interest received 2,926,266 4,742,536 4,965,120Net cash from operating activities 1,039,295,490 812,445,544 680,593,544

CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of:

Property and equipment (Note 34) (964,438,679) (281,345,489) (1,055,816,211)Investment properties (Note 34) – (6,360,205) –Subsidiaries, net of cash received (Note 34) – – 14,269,102

Decrease (increase) in:Investments in and advances to associates and joint

ventures (Note 34) (275,461,705) (52,956,812) 959,873Intangible assets and other noncurrent assets (Note 34) (38,107,197) (44,659,185) (1,860,857)

Dividends received 15,434,470 12,484,104 12,492,973Proceeds from derecognition of a subsidiary, net of cash disposed (Note 18) 13,752,793 – –Proceeds from sale of investment in an associate 1,914,250 – –Proceeds from sale of property and equipment 51,000 21,500 313,000Net cash used in investing activities (1,246,855,068) (372,816,087) (1,029,642,120)

(Forward)

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CASH FLOWS FROM FINANCING ACTIVITIESDividends paid (₱1,078,655,151) (₱250,000,000) (₱250,000,000)Payments of:

Long-term debt (see Note 15) (100,800,000) (216,000,000) (108,000,000)Obligations under finance lease (4,875,483) (9,438,557) (8,431,128)Short-term loans (1,248,000,000) – (580,000,000)

Interest paid (61,905,517) (51,698,435) (13,197,451)Proceeds from stock subscription (Note 19) 100,000,000 – –Proceeds from availments of:

Long-term debt – – 1,200,000,000Short-term loans 1,993,000,000 – 400,000,000

Proceeds from issuance of bonds 3,000,000,000 – –Payment of bond issuance costs (53,092,612) – –Net cash from (used in) financing activities 2,545,671,237 (527,136,992) 640,371,421

NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS 2,338,111,659 (87,507,535) 291,322,845

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 542,171,072 629,678,607 338,355,762

CASH AND CASH EQUIVALENTSAT END OF YEAR ₱2,880,282,731 ₱542,171,072 ₱629,678,607


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STI EDUCATION SERVICES GROUP, INC.(A Private Educational Institution)AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

a. General

STI Education Services Group, Inc. (STI ESG or the Parent Company) and its subsidiaries(hereafter collectively referred to as the “Group”) are all incorporated in the Philippines andregistered with the Philippine Securities and Exchange Commission (SEC). The ParentCompany was incorporated on June 2, 1983 and is involved in establishing, maintaining, andoperating educational institutions to provide pre-elementary, elementary, secondary andtertiary as well as post-graduate courses, post-secondary and lower tertiary non-degreeprograms. The Group also develops, adopts and/or acquires, entirely or in part, such curriculaor academic services as may be necessary in the pursuance of its main activities, relating butnot limited to information technology services, information technology-enabled services,education, hotel and restaurant management, engineering and business studies. STI ESG isalso offering Senior High School.

On March 23, 2017, the Parent Company issued the first tranche amounting toP=3,000.0 million of its P=5,000.0 million fixed rate bonds program under its 3-year shelfregistration with the SEC which was listed through the Philippine Dealing and ExchangeCorp. (PDEx) (see Note 17).

STI ESG is 98.7%-owned by STI Education Systems Holdings, Inc. (STI Holdings) which isthe ultimate parent company of the Group. STI Holdings is a company incorporated in thePhilippines and is listed in the Philippine Stock Exchange (PSE).

The Parent Company has investments in several entities which own and operate STI schools.STI schools may be operated either by: (a) the Parent Company; (b) its subsidiaries; or(c) independent entrepreneurs (referred to as the “franchisees”) under the terms of licensingagreements with the Parent Company. All franchisees are covered by licensing agreements,which require courseware to be obtained from the Parent Company. Other features of thelicensing agreements are as follows:

§ Exclusive right to use proprietary marks and information such as but not limited tocourseware programs, operational manuals, methods, standards, systems, that are usedexclusively in the STI network of schools;

§ Continuing programs for faculty and personnel development, including evaluation andaudit of pertinent staff;

§ Development and adoption of the enrollment and registration system;§ Assistance on matters pertaining to financial and accounting procedures, faculty

recruitment and selection, marketing and promotion, record keeping and others.

All STI schools start the school calendar every June of each year.

The establishment, operation, administration and management of schools are subject to theexisting laws, rules and regulations, policies, and standards of the Department of Education(DepEd), Technical Education and Skills Development Authority (TESDA) and theCommission on Higher Education (CHED) pursuant to Batas Pambansa Bilang 232, otherwise

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known as the “Education Act of 1982”, Republic Act (RA) No. 7796, otherwise known as the“TESDA Act of 1994,” and RA No. 7722, otherwise known as the “Higher Education Act of1994,” respectively.

b. K to 12 Program

On May 15, 2013, RA No. 10533, otherwise known as the “Enhanced Basic Education Act of2013” was signed into law. This marked the introduction of the K to 12 program, which insummary, adds two (2) years of secondary education, otherwise known as Senior High School,prior to admission to tertiary education. For schools in the Philippines that offer tertiaryeducation, similar to STI ESG, this means a substantial reduction in incoming collegefreshmen students for two (2) academic years. This period covers School Years (SY) 2016-17and 2017-18.

Seeing the opportunity, management decided to capitalize on its nationwide presence andample facilities to be able to implement the first-to-market approach of the Senior HighSchool program. In 2014, DepEd granted a permit to offer Senior High School to sixty-seven(67) STI schools out of a total of ninety-two (92) schools. As at July 6, 2017 all 76 schools inthe STI ESG network have been granted the DepEd permit to offer Senior High School.

The two (2) program tracks covered by the permit are the Academic and Technical–Vocational–Livelihood Tracks. Under the Technical–Vocational–Livelihood Track, theGroup offers three strands with various specializations.

Academic Track§ Accountancy, Business and Management§ Humanities and Social Sciences§ Science, Technology, Engineering and Mathematics§ General Academic Strand

Technical–Vocational–Livelihood TrackInformation and Communications Technology (ICT) StrandSpecializations:§ Computer Programming§ Animation§ Illustration§ Computer Hardware Servicing§ Broadband Installation

Home Economics StrandSpecializations:§ Commercial Cooking§ Cookery§ Bartending§ Food and Beverage Services§ Tour Guiding Services§ Travel Services§ Tourism and Promotion Services§ Front Office Services§ Housekeeping

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Industrial Arts StrandSpecialization:§ Consumer Electronics Servicing

On August 10, 2015, DepEd granted a permit to Information and CommunicationsTechnology Academy, Inc. (iACADEMY), a subsidiary of STI ESG until September 2016 tooffer Senior High School. iACADEMY offers three tracks, as follows:

§ Academic Track§ Accountancy, Business and Management§ Humanities and Social Science

§ Technical–Vocational Track

ICT StrandSpecializations:§ Computer Programming§ Animation

Home Economics StrandSpecialization:§ Fashion Design

§ Arts and Design Track§ Media and Visual Arts

The Senior High School offering of STI ESG aims to minimize the impact of the expectedreduction in enrollment since there will be a substantially reduced number of college freshmenduring the transition period from Senior High School to College. Likewise, there is anopportunity for STI ESG and iACADEMY to increase its student retention and migrationwhen the students graduate from Senior High School and decide to pursue a Baccalaureatedegree.

In September 2016, STI Holdings acquired 100% interest of iACADEMY from STI ESG (seeNote 19).

c. Merger with Several Majority and Wholly-Owned Subsidiaries

On December 9, 2010, the Parent Company’s stockholders approved the following mergers:

§ Phase 1: The merger of three (3) majority-owned schools and fourteen (14) wholly-ownedschools with the Parent Company, with the Parent Company as the surviving entity.The Phase 1 merger was approved by the CHED and the SEC on March 15, 2011 andMay 6, 2011, respectively.

§ Phase 2: The merger of one (1) majority-owned school and eight (8) wholly-owned pre-operating schools with the Parent Company, with the Parent Company as the survivingentity. The Phase 2 merger was approved by the CHED and the SEC on July 18, 2011and August 31, 2011, respectively.

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On September 25, 2013, the Board of Directors (BOD) of the Parent Company approved anamendment to the Phase 1 and 2 mergers whereby the Parent Company would issue shares at parvalue, to the stockholders of the non-controlling interests. In 2014, STI ESG issued 1.9 millionadditional shares at par value to the stockholders of one of the merged schools. As at July 6, 2017,the amendment is pending approval by the SEC.

Also on September 25, 2013, the BOD of the Parent Company approved the Phase 3 mergerwhereby STI College Taft, Inc. (STI Taft) and STI College Dagupan, Inc. (STI Dagupan) will bemerged with the Parent Company, with the Parent Company as the surviving entity. On August 5,2016, the Parent Company filed its application for merger with the SEC. As at July 6, 2017, saidapplication for merger is still pending approval.

As at July 6, 2017, the Company’s request for confirmatory ruling on the tax-free merger from thePhilippine Bureau of Internal Revenue (BIR) is still pending

The registered office address of the Parent Company is STI Academic Center Ortigas-Cainta,Ortigas Avenue Extension, Cainta Rizal.

The accompanying consolidated financial statements were approved and authorized for issue bythe BOD of the Parent Company on July 6, 2017.

2. Basis of Preparation and Summary of the Group’s Significant Accounting Policies

Basis of PreparationThe accompanying consolidated financial statements have been prepared on a historical cost basis,except for quoted available-for-sale (AFS) financial assets which have been measured at fairvalue, certain inventories which have been measured at net realizable value, certain investments inassociates and joint ventures which have been measured at recoverable amount and refundabledeposits which are measured at amortized cost. The consolidated financial statements arepresented in Philippine Peso (₱), which is the Parent Company’s functional and presentationcurrency, and all values are rounded to the nearest peso, except when otherwise indicated.

Statement of ComplianceThe accompanying consolidated financial statements of the Group have been prepared inaccordance with accounting principles generally accepted in the Philippines which includes allapplicable Philippine Financial Reporting Standards (PFRS) which include Philippine AccountingStandards (PAS) and Philippine Interpretations based on equivalent interpretations from theInternational Financial Reporting Interpretations Committee (IFRIC) adopted by the PhilippineFinancial Reporting Standards Council (FRSC) and accounting standards set forth in Pre-NeedRule 31, As Amended: Accounting Standards for Pre-Need Plans and Pre-Need Uniform Chart ofAccounts, otherwise known as PNUCA, as required by the SEC for PhilPlans First, Inc.(PhilPlans). PhilPlans is a pre-need company and is a wholly-owned subsidiary of MaestroHoldings, Inc. (Maestro Holdings, formerly known as STI Investments, Inc.), an associate of theParent Company.

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Changes in Accounting Policies and DisclosuresThe accounting policies adopted are consistent with those of the previous financial year, except forthe adoption of the new and amended PFRS that became effective beginning on April 1, 2016.The adoption of these new standards and amendments did not have any significant impact on theconsolidated financial statements:

§ PFRS 10, Consolidated Financial Statements, and PAS 28, Investments in Associates and Joint Ventures – Investment Entities: Applying the Consolidation Exception

(Amendments)§ PFRS 11, Joint Arrangements – Accounting for Acquisitions of Interests (Amendments)§ PAS 1, Presentation of Financial Statements – Disclosure Initiative (Amendments)§ PFRS 14, Regulatory Deferral Accounts§ PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture – Bearer Plants§ PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets – Clarification of

Acceptable Methods of Depreciation and Amortization (Amendments)§ Annual Improvements to PFRS (2012 – 2014 cycle)§ PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations – Changes in

Methods of Disposal§ PFRS 7, Financial Instruments: Disclosures – Servicing Contracts§ PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed Interim

Financial Statements§ PAS 19, Employee Benefits – regional market issue regarding discount rate

PAS 34, Interim Financial Reporting – disclosure of information ‘elsewhere in the interimfinancial report’

Standards Issued but Not Yet EffectiveThe standards and interpretations that are issued but not yet effective as at March 31, 2017 arelisted below. The Group intends to adopt these standards when they become effective. Adoptionof these standards and interpretations are not expected to have any significant impact on theconsolidated financial statements.

Effective April 1, 2018

§ PFRS 9, Financial Instruments§ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial

Instruments, with PFRS 4§ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of

Share-based Payment Transactions

Deferred

§ Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate§ PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint

Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The Group has not early adopted the previously mentioned standards. The Group continues toassess the impact of the above new, amended and improved accounting standards andinterpretations effective subsequent to March 31, 2017 on its consolidated financial statements inthe period of initial application. Additional disclosures required by these amendments will beincluded in the consolidated financial statements when these amendments are adopted.

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The following new standards issued by the International Accounting Standards Board have not yetbeen adopted by the FRSC.

§ PFRS 15, Revenue from Contracts with Customers (effective January 1, 2018)§ PFRS 16, Leases (effective January 1, 2019)

The Group is currently assessing the impact of IFRS 15 and IFRS 16 and plans to adopt the newstandards on their required effective dates once adopted locally.

Current versus Noncurrent ClassificationThe Group presents assets and liabilities in the consolidated statement of financial position basedon current/noncurrent classification. An asset is current when:

§ It is expected to be realized or intended to be sold or consumed in the normal operating cycle§ It is held primarily for the purpose of trading§ It is expected to be realized within twelve months after the reporting period, or§ It is cash or cash equivalent unless restricted from being exchanged or used to settle a liability

for at least twelve months after the reporting period

All other assets are classified as noncurrent.

A liability is current when:

§ It is expected to be settled in the normal operating cycle§ It is held primarily for the purpose of trading§ It is due to be settled within twelve months after the reporting period, or§ There is no unconditional right to defer the settlement of the liability for at least twelve

months after the reporting period

The Group classifies all other liabilities as noncurrent.

Deferred tax assets and liabilities are classified as noncurrent assets and liabilities, respectively.

Fair Value MeasurementThe Group measures financial instruments, such as AFS financial assets, at fair value at eachreporting date. Also, the fair values of financial instruments measured at amortized cost andinvestment properties are disclosed in the notes to the consolidated financial statements.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer theliability takes place either:

§ In the principal market for the asset or liability, or§ In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group.

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The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest. A fair value measurement of a non-financial asset takes into account amarket participant’s ability to generate economic benefits by using the asset in its highest and bestuse or by selling it to another market participant that would use the asset in its highest and bestuse.

The Group uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observableinputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financialstatements are categorized within the fair value hierarchy, described as follows, based on thelowest level input that is significant to the fair value measurement as a whole:

§ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities§ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is directly or indirectly observable§ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statements on a recurringbasis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

Management determines the policies and procedures for both recurring fair value measurementand non-recurring measurement.

External valuers are involved for valuation of significant assets, such as investment property.Involvement of external valuers is decided upon annually. Selection criteria include marketknowledge, reputation, independence and whether professional standards are maintained.Management decides, after discussions with the external valuers, which valuation techniques andinputs to use for each case.

At each reporting date, the management analyzes the movements in the values of assets andliabilities which are required to be re-measured or re-assessed as per accounting policies. For thisanalysis, the management verifies the major inputs applied in the latest valuation by agreeing theinformation in the valuation computation to contracts and other relevant documents.

Management, in conjunction with the Group’s external valuers, also compares each change in thefair value of each asset and liability with relevant external sources to determine whether thechange is reasonable.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilitieson the basis of the nature, characteristics and risks of the asset or liability and the level of the fairvalue hierarchy as explained above.

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Basis of ConsolidationThe consolidated financial statements comprise the financial statements of the Parent Companyand its subsidiaries.

Control is achieved when the Group is exposed, or has rights, to variable returns from itsinvolvement with the investee and has the ability to affect those returns through its power over theinvestee.

Specifically, the Parent Company controls an investee, if and only if, the Parent Company has:

§ Power over the investee (i.e. existing rights that give it the current ability to direct the relevantactivities of the investee)

§ Exposure, or rights, to variable returns from its involvement with the investee, and§ The ability to use its power over the investee to affect its returns

When the Parent Company has less than a majority of the voting or similar rights of an investee,the Parent Company considers all relevant facts and circumstances in assessing whether it haspower over an investee, including:

§ The contractual arrangement with the other vote holders of the investee§ Rights arising from other contractual arrangements§ The Parent Company’s voting rights and potential voting rights

The consolidated financial statements include the accounts of STI College of Kalookan, Inc.(STI Caloocan) and STI Diamond College, Inc. (STI Diamond), which are both non-stockcorporations and controlled by the Parent Company by virtue of management contracts. STIDiamond was deconsolidated in September 2016.

The Parent Company re-assesses whether or not it controls an investee if facts and circumstancesindicate that there are changes to one or more of the three elements of control. Consolidation of asubsidiary begins when the Parent Company obtains control over the subsidiary and ceases whenthe Parent Company loses control of the subsidiary. Assets, liabilities, income and expenses of asubsidiary acquired or disposed of during the year are included in the consolidated statement ofcomprehensive income from the date the Parent Company gains control until the date the ParentCompany ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to theequity holders of the Parent Company and to the non-controlling interests, even if this results inthe non-controlling interests having a deficit balance. When necessary, adjustments are made tothe financial statements of subsidiaries to bring their accounting policies into line with the Group’saccounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flowsrelating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as anequity transaction. If the Parent Company loses control over a subsidiary, it:

§ Derecognizes the assets (including goodwill) and liabilities of the subsidiary§ Derecognizes the carrying amount of any non-controlling interest§ Derecognizes the unrealized OCI deferred in equity§ Recognizes the fair value of the consideration received§ Recognizes the fair value of any investment retained§ Recognizes any surplus or deficit in profit or loss

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§ Reclassifies the Parent Company’s share of components previously recognized in OCI toprofit or loss or retained earnings, as appropriate.

The subsidiaries of the Parent Company, which are all incorporated in the Philippines, are asfollows:

Effective Percentage of Ownership2017 2016 2015

Subsidiaries Principal Activities Direct Indirect Direct Indirect Direct IndirectSTI College Tuguegarao, Inc. (STI Tuguegarao) Educational Institution 100 – 100 – 100 –STI Caloocan (a) Educational Institution 100 – 100 – 100 –STI College Batangas, Inc. (STI Batangas) Educational Institution 100 – 100 – 100 –STI College Iloilo, Inc. (STI Iloilo) Educational Institution 100 – 100 – 100 –STI College Tanauan, Inc. (STI Tanauan) Educational Institution 100 – 100 – 100 –STI Lipa, Inc. (STI Lipa) Educational Institution 100 – 100 – 100 –STI College Pagadian, Inc. (STI Pagadian) Educational Institution 100 – 100 – 100 –STI College Novaliches, Inc. (STI Novaliches) Educational Institution 100 – 100 – – –STI Dagupan(b) Educational Institution 100 – 100 – 77 –STI Taft (b) Educational Institution 100 – 75 – 75 –De Los Santos-STI College, Inc. (De Los Santos-STI College) (c) Educational Institution 52 – 52 – 52 –STI College Quezon Avenue, Inc. (STI QA)(d) Educational Institution – 52 – 52 – 52iACADEMY (e) Educational Institution – – 100 – 100 –STI Diamond (e) Educational Institution – – 100 – 100 –(a) A subsidiary through a management contract (see Note 4)(b) Converted advances to equity through issuance of shares (see Note 19)(c) On June 28, 2016, De Los Santos-STI College wrote the CHED advising the latter of the suspension of its operations for schoolyears 2016-2017 and 2017-2018 as a result of the implementation of the Government’s K to 12 program. In the same letter, De LosSantos-STI College requested that it be allowed to keep all of its existing permits and licenses for its academic programs. It alsomentioned that the grant of such request would allow De Los Santos-STI College to immediately resume offering its academicprograms to incoming freshmen students for its planned resumption of operation in SY 2018-2019. These academic programs are: BSNursing, BS Radiologic Technology, BS Psychology, BS Physical Therapy, BS Hotel and Restaurant Management and BS Tourism.CHED, in a letter reply dated July 1, 2016, said that De Los Santos-STI College shall apply again for initial permits if it intends tooffer the said programs in SY 2018-2019. De Los Santos-STI College shall request CHED for a reconsideration.(d) A wholly-owned subsidiary of De Los Santos-STI College(e) Ceased to be a subsidiary in September 2016 (see Notes 18 and 19)

Accounting Policies of Subsidiaries. The separate financial statements of the subsidiaries areprepared using uniform accounting policies for like transactions and other events in similarcircumstances.

The consolidated financial statements include the accounts of the Parent Company and itssubsidiaries as at March 31 of each year, except for the accounts of STI Dagupan, STITuguegarao, STI Diamond (consolidated until September 2016), STI Caloocan and STI Iloilo,whose financial reporting dates end on December 31. Adjustments are made for the effects ofsignificant transactions or events that occur between the financial reporting date of the above-mentioned subsidiaries and the financial reporting date of the Group’s consolidated financialstatements.

Non-Controlling Interests. Non-controlling interests represent the portion of profit or loss and netassets in the subsidiaries not held by the Parent Company and are presented in profit or loss andwithin equity in the consolidated statement of financial position, separately from equityattributable to equity holders of the Parent Company.

On transactions with non-controlling interests without loss of control, the difference between thefair value of the consideration and the book value of the share in the net assets acquired ordisposed is treated as an equity transaction and is presented as “Other equity reserve” within theequity section of the consolidated statement of financial position.

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Business Combination and GoodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisitionis measured as the aggregate of the consideration transferred, measured at acquisition date fairvalue and the amount of any non-controlling interest in the acquiree. For each businesscombination, the Group elects whether to measure the non-controlling interest in the acquireeeither at fair value or at the proportionate share in the acquiree’s identifiable net assets.Acquisition-related costs are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed forappropriate classification and designation in accordance with the contractual terms, economiccircumstances and pertinent conditions as at the acquisition date. This includes the separation ofembedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest in theacquiree is remeasured at its acquisition date fair value and any resulting gain or loss is recognizedin profit or loss. It is then considered in the determination of goodwill. Any contingentconsideration to be transferred by the acquirer will be recognized at fair value at the acquisitiondate. Contingent consideration classified as an asset or liability that is a financial instrument andwithin the scope of PAS 39, Financial Instruments: Recognition and Measurement is measured atfair value with changes in fair value recognized in profit or loss. If the contingent consideration isnot within the scope of PAS 39, it is measured in accordance with the appropriate PFRS.Contingent consideration that is classified as equity is not re-measured and is accounted for withinequity upon settlement.

Goodwill acquired in a business combination is initially measured at cost being the excess of thecost of business combination over the interest in the net fair value of the acquiree’s identifiableassets, liabilities and contingent liabilities measured at acquisition date. If the cost of acquisitionis less than the fair value of the net assets of the acquiree, the difference is recognized directly inprofit or loss. If the initial accounting for business combination can be determined onlyprovisionally by the end of the period by which the combination is effected because either the fairvalue to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities or thecost of the combination can be determined only provisionally, the Group accounts for thecombination using provisional values. Adjustment to these provisional values as a result ofcompleting the initial accounting shall be made within 12 months from the acquisition date. Thecarrying amount of an identifiable asset, liability, or contingent liability that is recognized fromthat date and goodwill or any gain recognized shall be adjusted from the acquisition date by theamount equal to the adjustment to the fair value at the acquisition date of the identifiable asset,liability or contingent liability being recognized or adjusted.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.For the purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Group’s cash-generating unit (CGU) that are expected tobenefit from the combination, irrespective of whether other assets or liabilities of the acquiree areassigned to those units.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposedof, the goodwill associated with the operation disposed of is included in the carrying amount of theoperation when determining the gain or loss on disposal of the operation. Goodwill disposed of inthis circumstance is measured based on the relative values of the operation disposed of and theportion of the CGU retained.

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Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash with original maturities of up tothree months or less from date of acquisition and are subject to an insignificant risk of change invalue.

Financial Assets

Initial Recognition. Financial assets are classified as financial assets at fair value through profit orloss (FVPL), loans and receivables, held-to-maturity (HTM) investments, AFS financial assets, oras derivatives designated as hedging instruments in an effective hedge, as appropriate. The Groupdetermines the classification of its financial assets at initial recognition and, where allowed andappropriate, re-evaluates the designation of such assets at each financial year-end.

Financial assets are recognized initially at fair value plus, in the case of financial assets not atFVPL, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame establishedby regulation or convention in the market place (regular way purchases) are recognized on thetrade date, i.e., the date that the Group commits to purchase or sell the asset.

The Group does not have financial assets at FVPL, HTM investments or derivatives.


Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments and are not quoted in an active market. Such financial assets are carried atamortized cost using the effective interest rate, or EIR, method. This method uses an EIR thatexactly discounts estimated future cash receipts through the expected life of the financial asset tothe net carrying amount of the financial asset. Gains and losses are recognized in the consolidatedstatement of comprehensive income when the loans and receivables are derecognized or impaired,as well as through the amortization process. Interest earned is recognized as “Interest income” inprofit or loss. Assets in the category are included in the current assets except for maturities greaterthan 12 months after the end of the reporting period, which are classified as noncurrent assets.

The Group’s cash and cash equivalents, receivables, and deposits (included under the “Goodwill,intangible and other noncurrent assets” account) are classified in this category.

AFS Financial Assets. AFS financial assets are those nonderivative financial assets that are notclassified as financial assets at FVPL, loans and receivables or HTM investments. They arepurchased and held indefinitely, and maybe sold in response to liquidity requirements or changesin market conditions.

After initial measurement, AFS financial assets are subsequently measured at fair value withunrealized gains or losses being recognized under “Unrealized mark-to-market gain (loss) onavailable-for-sale financial assets” account in OCI until the investment is derecognized ordetermined to be impaired, at which time the cumulative gain or loss previously recorded in OCIis included in profit or loss. Interest earned on the investments is reported as interest income usingthe effective interest rate method. Dividends earned on investments are recognized in profit orloss when the right to receive payment has been established. AFS financial assets are classified asnoncurrent assets unless the intention is to dispose such assets within 12 months from financialreporting date.

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The fair value of AFS financial assets consisting of any investments that are actively traded inorganized financial markets is determined by reference to market closing quotes as at financialreporting date.

The Group’s investments in club and ordinary shares are classified in this category.

Unlisted investments in shares of stock, for which no quoted market prices and no other reliablesources of their fair values are available, are carried at cost.

Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of agroup of similar financial assets) is primarily derecognized when:

§ The rights to receive cash flows from the asset have expired, or§ The Group has transferred its rights to receive cash flows from the asset or has assumed an

obligation to pay the received cash flows in full without material delay to a third party under a‘pass-through’ arrangement;

§ The Group has transferred its right to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of ownership of the asset, or (b) the Grouphas neither transferred nor retained substantially all the risks and rewards of the asset, but hastransferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards ofownership. When it has neither transferred nor retained substantially all of the risks and rewardsof the asset, nor transferred control of the asset, the Group continues to recognize the transferredasset to the extent of the Group’s continuing involvement. In that case, the Group also recognizesan associated liability. The transferred asset and the associated liability are measured on a basisthat reflects the rights and obligations that the Group has retained. Continuing involvement thattakes the form of a guarantee over the transferred asset is measured at the lower of the originalcarrying amount of the asset and the maximum amount of consideration that the Group could berequired to repay.

Impairment of Financial Assets Carried at Amortized Cost. The Group assesses, at each reportingdate, whether there is any objective evidence that a financial asset or a group of financial assets isimpaired. An impairment exists if one or more events that has occurred since the initialrecognition of the asset (an incurred ‘loss event’), has an impact on the estimated future cash flowsof the financial asset or the group of financial assets that can be reliably estimated. Evidence ofimpairment may include indications that the debtors or a group of debtors is experiencingsignificant financial difficulty, default or delinquency in interest or principal payments, theprobability that they will enter bankruptcy or other financial reorganization and observable dataindicating that there is a measurable decrease in the estimated future cash flows, such as changesin arrears or economic conditions that correlate with defaults.

For financial assets carried at amortized cost, the Group first assesses whether impairment existsindividually for financial assets that are individually significant, or collectively for financial assetsthat are not individually significant.

If the Group determines that no objective evidence of impairment exists for an individuallyassessed financial asset, whether significant or not, it includes the asset in a group of financialassets with similar credit risk characteristics and collectively assesses them for impairment.Assets that are individually assessed for impairment and for which an impairment loss is, orcontinues to be, recognized are not included in a collective assessment of impairment.

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The amount of any impairment loss identified is measured as the difference between the asset’scarrying amount and the present value of estimated future cash flows (excluding future expectedcredit losses that have not yet been incurred). The present value of the estimated future cash flowsis discounted at the financial asset’s original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the lossis recognized in profit or loss. Interest income continues to be accrued on the reduced carryingamount and is accrued using the rate of interest used to discount the future cash flows for thepurpose of measuring the impairment loss. Loans together with the associated allowance arewritten off when there is no realistic prospect of future recovery and all collateral has beenrealized or has been transferred to the Group. If, in a subsequent year, the amount of the estimatedimpairment loss increases or decreases because of an event occurring after the impairment wasrecognized, the previously recognized impairment loss is increased or reduced by adjusting theallowance account. If a write-off is later recovered, the recovery is credited to finance costs inprofit or loss.

Impairment of Quoted AFS Financial Assets. In the case of equity investments classified as AFSfinancial assets, an objective evidence of impairment would include a significant or prolongeddecline in the fair value of the investments below its cost. “Significant” is to be evaluated againstthe original cost of the investment and “prolonged” against the period in which the fair value hasbeen below its original cost. When there is evidence of impairment, the cumulative loss which ismeasured as the difference between the acquisition cost and the current fair value, less anyimpairment loss on that financial asset previously recognized in OCI under the “Unrealized mark-to-market gain (loss) on available-for-sale financial assets” account, is removed from equity andrecognized in profit or loss. Impairment losses on equity investments are not reversed in profit orloss; increases in fair value after impairment are recognized directly in OCI.

Impairment of Unquoted AFS Financial Assets. If there is objective evidence that an impairmentloss has been incurred in an unquoted equity instrument that is not carried at fair value because itsfair value cannot be reliably measured, or on a derivative asset that is linked to and must be settledby delivery of such an unquoted equity instrument, the amount of loss is measured as thedifference between the asset’s carrying amount and the present value of estimated future cashflows discounted at the current market rate of return for a similar financial asset.

Financial Liabilities

Initial Recognition. Financial liabilities are classified as financial liabilities at FVPL, or as otherfinancial liabilities. The Group determines the classification of its financial liabilities at initialrecognition.

Financial liabilities are recognized initially at fair value and in the case of other financialliabilities, net of directly attributable transaction costs which include the Parent Company’s bondissuance costs, such as, taxes and various fees paid to investment banks, law firms, auditors,regulators, and so on.

The Group does not have financial liabilities at FVPL.


Other Financial Liabilities. After initial recognition, other financial liabilities are subsequentlymeasured at amortized cost using the EIR method.

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Gains and losses are recognized in the consolidated statement of comprehensive income when theliabilities are derecognized as well as through the EIR amortization process. Amortized cost iscalculated by taking into account any discount or premium on acquisition and fees or costs that areintegral part of the EIR. The EIR amortization is included in the consolidated statement ofcomprehensive income.

Other financial liabilities include interest-bearing loans and borrowings, bonds payable, accountspayable and other current liabilities (excluding unearned tuition and other school fees, governmentand other statutory liabilities), obligations under finance lease, and other noncurrent liabilities(excluding advance rent and deferred lease liability).

Offsetting of Financial InstrumentsFinancial assets and liabilities are offset with the net amount reported in the consolidatedstatement of financial position if, and only if, there is a currently enforceable legal right to offsetthe recognized amounts and there is an intention to settle on a net basis, or to realize the asset andsettle the liability simultaneously. The Group assesses that it has a currently enforceable right ofoffset if the right is not contingent on a future event, and is legally enforceable in the normalcourse of business, event of default and event of insolvency or bankruptcy of the Group and all ofthe counterparties.

InventoriesInventories are valued at the lower of cost and net realizable value. Cost is determined using theweighted average method. Net realizable value of educational materials is the selling price in theordinary course of business, less estimated costs necessary to make the sale. Net realizable valueof promotional and school materials and supplies is the current replacement cost.

Prepaid ExpensesPrepaid expenses are carried at cost and are amortized on a straight-line basis over the period ofexpected usage, which is equal to or less than 12 months or within the normal operating cycle.

Creditable Withholding Taxes (CWT). CWT represents the amount of tax withheld bycounterparties from the Group. These are recognized upon collection and are utilized as taxcredits against income tax due as allowed by Philippine taxation laws and regulations. CWT ispresented as part of “Prepaid taxes” under the “Prepaid expenses and other current assets” accountin the consolidated statement of financial position. CWT is stated at its estimated net realizablevalue.

Property and EquipmentProperty and equipment, except land, are stated at cost less accumulated depreciation,amortization and any impairment in value, excluding the costs of day-to-day servicing. The initialcost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property, plant andequipment to its working condition and location for its intended use. Such cost includes the costof replacing part of such property and equipment when that cost is incurred and the recognitioncriteria are met. Land is stated at cost less any impairment in value.

An item of property and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of theasset (calculated as the difference between the net disposal proceeds and the carrying amount ofthe asset) is included in profit or loss in the year the asset is derecognized.

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Depreciation and amortization are computed using the straight-line method over the followingestimated useful lives:

Buildings 20–25 yearsOffice and school equipment 5 yearsOffice furniture and fixtures 5 yearsLeasehold improvements 5 years or terms of the lease agreement,

whichever is shorterTransportation equipment 5 years or terms of the lease agreement,

whichever is shorterComputer equipment and peripherals 3 yearsLibrary holdings 3–5 years

The estimated useful lives and the depreciation and amortization method are reviewed periodicallyto ensure that the periods and depreciation and amortization method are consistent with theexpected pattern of economic benefits from items of property and equipment.

Fully depreciated assets are retained in the accounts until they are no longer in use and no furtherdepreciation and amortization is charged to current operations.

Construction in-progress represents structures under construction and is stated at cost less anyimpairment in value. This includes cost of construction and other direct costs, including anyinterest on borrowed funds during the construction period. Construction in-progress is notdepreciated until the relevant assets are completed and become available for operational use.

Investment PropertiesInvestment properties include land and buildings held by the Group for capital appreciation andrental purposes. Buildings are carried at cost less accumulated depreciation and any impairment invalue, while land is carried at cost less any impairment in value. The carrying amount includes thecost of constructing a significant portion of an existing investment property if the recognitioncriteria are met; and excludes the costs of day-to-day servicing of an investment property.

Depreciation of buildings is computed on a straight-line basis over 20–25 years. The asset’suseful life and method of depreciation are reviewed and adjusted, if appropriate, at each financialyear-end.

Investment properties are derecognized when either they have been disposed of or when theinvestment property is permanently withdrawn from use and no future economic benefit isexpected from its disposal. Any gains or losses on the retirement or disposal of an investmentproperty are recognized in profit or loss in the year of retirement or disposal.

Transfers are made to investment property when, and only when, there is a change in use,evidenced by ending of owner-occupation or commencement of an operating lease to anotherparty. Transfers are made from investment property when, there is a change in use, evidenced bycommencement of owner-occupation or commencement of development with a view to sell.

For a transfer from investment property to owner-occupied property or inventories, the cost ofproperty for subsequent accounting is its carrying value at the date of change in use. If theproperty occupied by the Group as an owner-occupied property becomes an investment property,the Group accounts for such property in accordance with the policy stated under property andequipment up to the date of change in use.

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Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition, construction orproduction of a qualifying asset. Qualifying assets are assets that necessarily take a substantialperiod of time to get ready for its intended use or sale. To the extent that funds are borrowedspecifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligiblefor capitalization on that asset shall be determined as the actual borrowing costs incurred on thatborrowing during the year less any investment income on the temporary investment of thoseborrowings. To the extent that funds are borrowed generally and used for the purpose of obtaininga qualifying asset, the amount of borrowing costs eligible for capitalization shall be determined byapplying a capitalizable rate to the expenditures on that asset. The capitalization rate shall be theweighted average of the borrowing costs applicable to borrowings that are outstanding during theyear, other than borrowings made specifically for the purpose of obtaining a qualifying asset. Theamount of borrowing costs capitalized during the year shall not exceed the amount of borrowingcosts incurred during that year.

Capitalization of borrowing costs commences when the activities necessary to prepare the asset forintended use are in progress and expenditures and borrowing costs are being incurred. Borrowingcosts are capitalized until the asset is available for their intended use. If the resulting carryingamount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowingcosts include interest charges and other costs incurred in connection with the borrowing of funds,as well as exchange differences arising from foreign currency borrowings used to finance theseprojects, to the extent that they are regarded as an adjustment to interest costs.

All other borrowing costs are expensed as incurred in the year in which they occur.

Investments in Associates and Joint VenturesAn associate is an entity over which the Group has significant influence. Significant influence isthe power to participate in the financial and operating policy decisions of the investee, but notcontrol or joint control over those policies.

The Group has interests in Philippine Healthcare Educators, Inc. (PHEI) and STI-PHNSOutsourcing Corporation (STI-PHNS), both joint ventures. A joint venture is a type of jointarrangement whereby the parties that have joint control of the arrangement have rights to the netassets of the joint venture. Joint control is the contractually agreed sharing of control of anarrangement which exists only when decisions about the relevant activities require unanimousconsent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to thosenecessary to determine control over subsidiaries.

The Group’s interests in associates and joint ventures are accounted for using the equity method.

Under the equity method, the investment in an associate or a joint venture is initially recognized atcost. The carrying amount of the investment is adjusted to recognize changes in the Group’s shareof net assets of the associate or joint venture since the acquisition date. Goodwill relating to theassociate or joint venture is included in the carrying amount of the investment and is neitheramortized nor individually tested for impairment.

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The consolidated statement of comprehensive income reflects the Group’s share of the results ofoperations of the associate or joint venture. Any change in OCI of those investees is presented aspart of the Group’s OCI. In addition, when there is a change recognized directly in the equity ofthe associate or joint venture, the Group recognizes its share of any changes, when applicable, inthe consolidated statement of changes in equity. Unrealized gains and losses resulting fromtransactions between the Group and the associate or joint venture are eliminated to the extent ofthe interest in the associate or joint venture.

The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown onthe face of the consolidated statement of comprehensive income outside operating profit andrepresents profit or loss after tax and non-controlling interests in the subsidiaries of the associateor joint venture.

The financial reporting dates of the associates, joint ventures and the Parent Company areidentical, except for Synergia Human Capital Solutions, Inc. (Synergia), Global Resource forOutsourced Workers, Inc. (GROW) and Maestro Holdings which have December 31 as theirfinancial reporting date, and the associates’ and joint ventures’ accounting policies conform tothose used by the Group for like transactions and events in similar circumstances. Adjustmentsare made for the Group’s share in the effects of significant transactions or events that occurbetween the financial reporting date of the above-mentioned associates and joint ventures and thefinancial reporting date of the Group’s financial statements.

After application of the equity method, the Group determines whether it is necessary to recognizeany impairment loss on its investment in associates and joint ventures. The Group determines ateach financial reporting date whether there is any objective evidence that the investment inassociates and joint ventures is impaired. If this is the case, the Group calculates the amount ofimpairment as the difference between the recoverable amount of the associate and joint ventureand its carrying value and recognizes the amount in profit or loss.

Upon loss of significant influence over the associate or joint control over the joint venture, theGroup measures and recognizes any retained investment at its fair value. Any difference betweenthe carrying amount of the associate or joint venture upon loss of significant influence or jointcontrol and the fair value of the retained investment and proceeds from disposal is recognized inprofit or loss.

The associates of the Group, which are all incorporated in the Philippines, are as follows:

Effective Percentage of Ownership2017 2016 2015

Associate Principal Activities Direct Indirect Direct Indirect Direct IndirectAccent Healthcare/STI-Banawe, Inc.

(STI Accent) (a)Medical and related

services 49 – 49 – 49 –STI College Alabang, Inc.

(STI Alabang)Educational

Institution 40 – 40 – 40 –Synergia(a) Management

ConsultingServices 30 – 30 – 30 –

STI Marikina EducationalInstitution 24 – 24 – 24 –

Maestro Holdings Holding Company 20 – 20 – 20 –GROW Recruitment Agency 17 2 17 2 17 2STI Holdings (see Note 4) Holding Company 5 – 5 – 5 –(a) Dormant entities

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Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. Following initialrecognition, intangible assets are carried at cost less any accumulated amortization in the case ofintangible assets with finite lives, and any accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assetswith finite lives are amortized over the useful economic life and assessed for impairmentwhenever there is an indication that the intangible asset may be impaired. The amortization periodand the amortization method for an intangible asset with a finite useful life are reviewed at least ateach financial year-end. Changes in the expected useful life or the expected pattern ofconsumption of future economic benefits embodied in the asset is accounted for by changing theamortization period or method, as appropriate, and are treated as changes in accounting estimates.The amortization expense on intangible assets with finite lives is recognized in the consolidatedstatement of comprehensive income in the expense category consistent with the function of theintangible asset.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairmentannually, either individually or at the CGU level. The assessment of indefinite life is reviewedannually to determine whether the indefinite life continues to be supportable. If not, the change inuseful life from indefinite to finite is made on a prospective basis.

The Group has assessed the intangible assets as having a finite useful life which is the shorter ofits contractual term or economic life. Amortization is on a straight-line basis over the estimateduseful lives of 3 years.

Gains or losses arising from derecognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the asset and are recognized inprofit or loss when the asset is derecognized.

Impairment of Nonfinancial AssetsThe carrying values of investments in and advances to associates and joint ventures, property andequipment, investment properties, intangible assets and advances to suppliers are reviewed forimpairment when events or changes in circumstances indicate that the carrying value may not berecoverable. When an indicator of impairment exists or when an annual impairment testing for anasset is required, the Group makes a formal estimate of recoverable amount. Recoverable amountis the higher of an asset’s (or CGU’s) fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cash inflows that are largelyindependent of those from other assets or groups of assets, in which case the recoverable amountis assessed as part of the CGU to which it belongs. Where the carrying amount of an asset (orCGU) exceeds its recoverable amount, the asset (or CGU) is considered impaired and is writtendown to its recoverable amount. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset (or CGU). Indetermining fair value less costs to sell, an appropriate valuation model is used. Thesecalculations are corroborated by valuation multiples, quoted share prices for publicly tradedsecurities or other available fair value indicators.

Impairment losses are recognized in the consolidated statement of comprehensive income in thoseexpense categories consistent with the function of the impaired asset, except for assets previouslyrevalued where the revaluation was taken to equity. In this case, the impairment is alsorecognized in equity up to the amount of any previous revaluation.

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For nonfinancial assets, excluding goodwill, an assessment is made at each reporting date as towhether there is any indication that previously recognized impairment losses may no longer existor may have decreased. If such indication exists, the recoverable amount is estimated. Apreviously recognized impairment loss is reversed only if there has been a change in the estimatesused to determine the asset’s recoverable amount since the last impairment loss was recognized. Ifthat is the case, the carrying amount of the asset is increased to its recoverable amount. Thatincreased amount cannot exceed the carrying amount that would have been determined, net ofdepreciation and amortization (in the case of property and equipment, investment properties andintangible assets), had no impairment loss been recognized for the asset in prior years. Suchreversal is recognized in profit or loss unless the asset is carried at a revalued amount, in whichcase the reversal is treated as a revaluation increase. After such a reversal, the depreciation andamortization expense is adjusted in future years to allocate the asset’s revised carrying amount,less any residual value, on a systematic basis over its remaining life.

Goodwill. Goodwill is reviewed for impairment, annually or more frequently if events or changesin circumstances indicate that the carrying value may be impaired. Impairment is determined byassessing the recoverable amount of the CGUs to which the goodwill relates. Where therecoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU(or group of CGUs) to which the goodwill has been allocated, an impairment loss is recognized inthe consolidated statement of comprehensive income. Impairment losses relating to goodwillcannot be reversed for subsequent increases in its recoverable amount in future periods. TheGroup performs its annual impairment test of goodwill as at March 31 of each year.

Unearned Tuition and Other School FeesFees pertaining to the school year commencing after the financial reporting date are recordedunder “Unearned tuition and other school fees” in the consolidated statement of financial position.Unearned tuition and other school fees are amortized over the related school term.

ProvisionsProvisions are recognized when the Group has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits willbe required to settle the obligation and a reliable estimate can be made of the amount of theobligation. When the Group expects a provision to be reimbursed, such as under an insurancecontract, the reimbursement is recognized as a separate asset but only when the reimbursement isvirtually certain. The expense relating to any provision is presented in profit or loss, net of anyreimbursement. If the effect of the time value of money is material, provisions are determined bydiscounting the expected future cash flow at a pre-tax rate that reflects current market assessmentsof the time value of money and, where appropriate, the risks specific to the liability. Whendiscounting is used, the increase in the provision due to the passage of time is recognized as“Interest expense”.

Capital Stock and Additional Paid-in CapitalCommon stock is measured at par value for all shares issued. Incremental costs incurred directlyattributable to the issuance of new shares are shown in equity as a deduction from proceeds, net oftax. Proceeds and/or fair value of consideration received in excess of par value are recognized asadditional paid-in capital.

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Retained Earnings and Dividend on Common Stock of the Parent CompanyThe amount included in retained earnings includes profit attributable to the Parent Company’sequity holders and reduced by dividends on capital stocks. Dividends on capital stocks arerecognized as liability and deducted from equity when approved by the BOD of the ParentCompany. Dividends that are approved after the financial reporting date are dealt with as an eventafter the financial reporting period.

Earnings per Share (EPS) Attributable to the Equity Holders of the Parent CompanyEPS is computed by dividing net income attributed to equity holders of the Parent Company forthe year by the weighted average number of shares issued and outstanding after giving retroactiveeffect to any stock split and stock dividend declaration, if any.

Diluted EPS is calculated by dividing the net income attributable to equity holders of the ParentCompany by the weighted average number of common shares outstanding during the year adjustedfor the effects of any dilutive convertible common shares.

RevenueRevenue is recognized to the extent that it is probable that the economic benefits will flow to theGroup and the amount of the revenue can be measured reliably. The Group assesses whether it isacting as a principal or an agent in every revenue arrangements. It is acting as a principal when ithas the primary responsibility for providing the goods or services. The Group also acts as aprincipal when it has the discretion in establishing the prices and bears inventory and credit risk.Revenue is measured at the fair value of the consideration received, excluding discounts, rebatesand value-added tax (VAT).

The following specific recognition criteria must also be met before revenue is recognized:

Tuition and Other School Fees. Revenue from tuition and other school fees is recognized asincome over the corresponding school term to which they pertain. Fees received pertaining to theschool year commencing after the financial reporting date are recorded under the “Unearnedtuition and other school fees” account in the consolidated statement of financial position.Unearned tuition and other school fees are amortized over the related school term.

Educational Services. Revenue is recognized as services are rendered.

Royalty Fees. Revenue from royalty fees is recognized on an accrual basis in accordance with theterms of the licensing agreements.

Management Fees. Revenue is recognized when services are rendered (included as part of the“Other revenues” account in the consolidated statement of comprehensive income).

Sale of Educational Materials and Supplies. Revenue is recognized at the time of sale whensignificant risks and rewards of ownership have been transferred.

Rental Income. Rental income is recognized on a straight-line basis over the term of the leaseagreement.

Dividend Income. Revenue is recognized when the Group’s right to receive the payment isestablished.

Interest Income. Interest income is recognized as the interest accrues considering the effectiveyield on the asset.

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Costs and ExpensesCosts and expenses are decreases in economic benefits during the accounting period in the form ofoutflows or decrease of assets or incurrence of liabilities that result in decreases in equity, otherthan those relating to distributions to equity participants. Costs and expenses are recognized inprofit or loss in the year these are incurred.

Pension CostsThe Group has the following pension plans (Plan) covering substantially all of its regular andpermanent employees:

Entity Type of PlanParent Company Funded, noncontributory defined benefit planSubsidiaries (except De Los Santos-STI

College and STI QA) Unfunded, noncontributory defined benefit planDe Los Santos-STI College and STI QA Funded, defined contribution plan

Defined Benefit Plans. The net defined benefit liability or asset is the aggregate of the presentvalue of the defined benefit obligation at the end of the reporting period reduced by the fair valueof plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the assetceiling. The asset ceiling is the present value of any economic benefits available in the form ofrefunds from the plan or reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

Defined benefit costs comprise the following:

§ Service cost§ Net interest on the net defined benefit liability or asset§ Remeasurements of net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses onnon-routine settlements are recognized as expense in profit or loss. Past service costs arerecognized when plan amendment or curtailment occurs. These amounts are calculatedperiodically by independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income inprofit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in OCI in the period in which they arise. Remeasurements are not reclassified toprofit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Group, nor can they be paid directlyto the Group. Fair value of plan assets is based on market price information. When no marketprice is available, the fair value of plan assets is estimated by discounting expected future cash

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flows using a discount rate that reflects both the risk associated with the plan assets and thematurity or expected disposal date of those assets (or, if they have no maturity, the expectedperiod until the settlement of the related obligations).

The Group’s right to be reimbursed of some or all of the expenditure required to settle a definedbenefit obligation is recognized as a separate asset at fair value when and only whenreimbursement is virtually certain.

Defined Contribution Plan. De Los Santos-STI College and STI QA are members of the CatholicEducational Association of the Philippines Retirement Plan (CEAP). CEAP is a funded,noncontributory, defined contribution plan covering De Los Santos-STI College’s and STI QA’squalified employees under which De Los Santos-STI College and STI QA pay fixed contributionsbased on the employees’ monthly salaries. De Los Santos-STI College and STI QA, however, arecovered under RA No. 7641, the Philippine Retirement Law, which provides for its qualifiedemployees a defined benefit (DB) minimum guarantee. The DB minimum guarantee is equivalentto a certain percentage of the monthly salary payable to an employee at normal retirement agewith the required credited years of service based on the provisions of RA No. 7641.

Accordingly, De Los Santos-STI College and STI QA account for their retirement obligationsunder the higher of the DB obligation relating to the minimum guarantee and the obligation arisingfrom the defined contribution (DC) plan. For the DB minimum guarantee plan, the liability isdetermined based on the present value of the excess of the projected DB obligation over theprojected DC obligation at the end of the reporting period. The DB obligation is calculatedannually by a qualified independent actuary using the projected unit credit method. De LosSantos-STI College and STI QA determine the net interest expense (income) on the net DBliability (asset) for the period by applying the discount rate used to measure the DB obligation atthe beginning of the annual period to the then net DB liability (asset), taking into account anychanges in the net DB liability (asset) during the period as a result of contributions and benefitpayments. Net interest expense and other expenses related to the DB plan are recognized in profitor loss.

The DC liability, on the other hand, is measured at the fair value of the DC assets upon which theDC benefits depend, with an adjustment for margin on asset returns, if any, where this is reflectedin the DC benefits. Remeasurements of the net DB liability, which comprise actuarial gains andlosses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any,excluding interest), are recognized immediately in OCI.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefitthat relates to past service or the gain or loss on curtailment is recognized immediately in profit orloss. De Los Santos-STI College and STI QA recognize gains or losses on the settlement of a DBplan when the settlement occurs.

LeasesThe determination whether an arrangement is, or contains, a lease is based on the substance of thearrangement at the inception date of whether the fulfillment of the arrangement is dependent onthe use of a specific asset or the arrangement conveys a right to use the asset.

Group as a Lessee. Finance leases, which transfer to the Group substantially all the risks andbenefits incidental to ownership of the leased item, are capitalized at the inception of the lease atthe fair value of the leased property or, if lower, at the present value of the minimum leasepayments. Lease payments are apportioned between the finance charges and reduction of the lease

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liability so as to achieve a constant rate of interest on the remaining balance of the liability.Finance charges are charged directly against profit or loss.

Capitalized leased assets are depreciated over the useful life of the asset. However, if there is noreasonable certainty that the Group will obtain ownership by the end of the lease term, the asset isdepreciated over the shorter of the estimated useful life of the asset and the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognized as expense in profit orloss on a straight-line basis over the lease term.

Group as a Lessor. Leases where the Group retains substantially all the risks and benefits ofownership of the asset are classified as operating leases. Initial direct costs incurred in negotiatingan operating lease are added to the carrying amount of the leased asset and recognized over thelease term on the same basis as rental income.

Taxes

Current Tax. Current tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authority. The tax rates and tax lawsused to compute the amount are those that are enacted or substantially enacted at the financialreporting date.

Deferred Tax. Deferred tax is provided using the liability method on temporary differences at thefinancial reporting date between the tax bases of assets and liabilities and their carrying amountsfor financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporarydifferences, except:

§ when the deferred tax liability arises from the initial recognition of goodwill or of an asset orliability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting income nor taxable income or loss;

§ in respect of taxable temporary differences associated with investments in subsidiaries andassociates and interests in joint ventures, when the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differences will not reversein the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences and carryforwardbenefit of net operating loss carryover (NOLCO), and to the extent that it is probable that taxableincome will be available against which the deductible temporary differences and carryforwardbenefits of NOLCO can be utilized, except:

§ when the deferred tax asset relating to the deductible temporary difference arises from theinitial recognition of an asset or liability in a transaction that is not a business combinationand, at the time of the transaction, affects neither the accounting income nor taxable income orloss;

§ in respect of deductible temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, deferred tax assets are recognized only to the extentthat it is probable that the temporary differences will reverse in the foreseeable future andtaxable income will be available against which the temporary differences can be utilized.

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The carrying amount of deferred tax assets is reviewed at each financial reporting date andreduced to the extent that it is no longer probable that sufficient future taxable profit will beavailable to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred taxassets are reassessed at each financial reporting date and are recognized to the extent that it hasbecome probable that future taxable income will allow the deferred tax assets to be recovered.

Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected toapply in the year when the asset is realized or the liability is settled, based on tax rates and taxlaws that have been enacted or substantially enacted at the financial reporting date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.Deferred tax items are recognized in correlation to the underlying transactions either in OCI ordirectly in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists tooffset current tax assets against current tax liabilities and the deferred taxes relate to the sametaxable entity and the same taxation authority.

VAT. Revenue, expenses and assets are recognized net of the amount of VAT, except:

§ when the VAT incurred on a purchase of assets or services is not recoverable from thetaxation authority, in which case the VAT is recognized as part of the cost of acquisition of theasset or as part of the expense item as applicable; or

§ receivables and payables that are stated with the amount of VAT included.

The net amount of VAT recoverable from, or payable to, the taxation authority is included as partof the “Prepaid expenses and other current assets” or “Accounts payable and other currentliabilities” accounts in the consolidated statement of financial position.

Operating SegmentFor management purposes, the Group is organized into business units based on the geographicallocation of the students and assets. Financial information about operating segments is presented inNote 3.

ContingenciesContingent liabilities are not recognized in the consolidated financial statements. These aredisclosed in the notes to the consolidated financial statements unless the possibility of an outflowof resources embodying economic benefits is remote. A contingent asset is not recognized in theconsolidated financial statements but disclosed in the notes to the consolidated financialstatements when an inflow of economic benefits is probable.

Events after the Reporting PeriodPost year-end events that provide additional information about the Group’s financial position atthe financial reporting date (adjusting events) are reflected in the consolidated financialstatements. Post year-end events that are not adjusting events are disclosed in the notes to theconsolidated financial statements when material.

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3. Segment Information

For management purposes, the Group is organized into business units based on the geographicallocation of the students and assets, and has five reportable segments as follows:

a. Metro Manilab. Northern Luzonc. Southern Luzond. Visayase. Mindanao

Management monitors operating results of its business segments separately for the purpose ofmaking decisions about resource allocation and performance assessment. Segment performance isevaluated based on operating profit or loss and is measured consistently with profit and loss in theconsolidated financial statements.

On a consolidated basis, the Group’s performance is evaluated based on net income for the yearand EBITDA, defined as earnings before interest expense, interest income, provision for incometax, depreciation and amortization, effect of derecognition of a subsidiary, equity in net earnings(loss) of associates and joint ventures and nonrecurring gains or losses (gain on exchange of landand excess of fair values of net assets acquired over acquisition cost from a business combination).

The following table shows the reconciliation of the consolidated net income to consolidatedEBITDA:

2017 2016 2015Consolidated net income ₱602,839,591 ₱673,264,362 ₱703,639,899Depreciation and amortization 319,508,317 319,744,658 267,437,553Equity in net earnings (loss) of

associates and joint ventures 158,823,602 (54,026,334) (104,909,591)Provision for income tax 93,493,682 66,887,637 62,936,779Interest expense 65,759,044 50,446,616 21,594,422Effect of derecognition of a

subsidiary 60,829,455 – –Interest income (2,926,266) (4,742,536) (4,965,120)Gain on exchange of land – – (172,137,167)Excess of fair values of net assets

acquired over acquisition costfrom a business combination – – (2,091,425)

Consolidated EBITDA ₱1,298,327,425 ₱1,051,574,403 ₱771,505,350

Inter-Segment TransactionsSegment revenue, segment expenses and operating results include transfers among geographicalsegments. The transfers are accounted for at competitive market prices charged to unrelatedcustomers for similar services. Such transfers are eliminated upon consolidation

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Geographical Segment DataThe following tables present revenue and income information and certain assets and liabilities information regarding geographical segments:

2017Metro Manila Northern Luzon Southern Luzon Visayas Mindanao Consolidated

Revenues ₱1,734,939,538 ₱97,241,868 ₱612,961,825 ₱64,203,761 ₱93,887,144 ₱2,603,234,136

ResultsIncome before other income and income tax ₱581,025,420 ₱26,150,744 ₱239,436,678 ₱13,396,440 ₱14,095,606 ₱874,104,888Equity in net earnings (loss) of associates and joint ventures (158,823,602) – – – – (158,823,602)Interest expense (65,724,096) – (24,993) (9,955) – (65,759,044)Effect of derecognition of a subsidiary (60,829,455) – – – – (60,829,455)Other income 103,820,586 78,310 766,625 20,536 28,163 104,714,220Interest income 2,646,792 72,610 132,412 36,186 38,266 2,926,266Income tax (93,493,682) – – – – (93,493,682)Net Income ₱308,621,963 ₱26,301,664 ₱240,310,722 ₱13,443,207 ₱14,162,035 ₱602,839,591

EBITDA 1,298,327,425

Assets and LiabilitiesSegment assets(a) ₱8,385,870,648 ₱49,589,935 ₱889,436,637 ₱62,374,587 ₱121,181,045 ₱9,508,452,852Goodwill 223,777,646 – – – – 223,777,646Investments in and advances to associates and joint ventures 1,565,432,417 – – – – 1,565,432,417Pension assets 2,763,398 – – – – 2,763,398Deferred tax assets 14,806,095 316,278 342,397 47,851 55,047 15,567,668Total Assets ₱10,192,650,204 ₱49,906,213 ₱889,779,034 ₱62,422,438 ₱121,236,092 ₱11,315,993,981

Segment liabilities(b) ₱450,172,482 ₱17,560,937 ₱41,425,419 ₱6,633,721 ₱23,483,285 ₱539,275,844Interest-bearing loans and borrowings 1,320,200,000 – – – – 1,320,200,000Bonds payable 2,947,028,638 – – – – 2,947,028,638Pension liabilities 4,801,402 666,374 429,565 149,779 40,833 6,087,953Obligations under finance lease 11,214,647 – 172,021 – – 11,386,668Total Liabilities ₱4,733,417,169 ₱18,227,311 ₱42,027,005 ₱6,783,500 ₱23,524,118 ₱4,823,979,103

Other Segment InformationCapital expenditures for property and equipment ₱983,453,678Depreciation and amortization 319,508,317Noncash expenses other than depreciation and amortization 80,718,164(a) Segment assets exclude goodwill, investments in and advances to associates and joint ventures and deferred tax assets.(b) Segment liabilities exclude interest-bearing loans and borrowings, bonds payable, pension liabilities and obligations under finance lease.

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Revenues ₱1,626,031,601 ₱97,832,577 ₱487,930,698 ₱52,526,870 ₱86,186,856 ₱2,350,508,602

ResultsIncome before other income and income tax ₱459,430,973 ₱22,486,144 ₱172,009,167 ₱4,488,728 ₱8,393,473 ₱666,808,485Equity in net earnings of associates and joint ventures 54,026,334 – – – – 54,026,334Interest expense (49,946,774) (2,700) (405,822) (91,320) – (50,446,616)Interest income 4,458,614 49,067 153,770 37,033 44,052 4,742,536Other income 64,449,354 7,300 532,642 31,964 – 65,021,260Income tax (66,887,637) – – – – (66,887,637)Net Income ₱465,530,864 ₱22,539,811 ₱172,289,757 ₱4,466,405 ₱8,437,525 ₱673,264,362

EBITDA 1,051,574,403

Assets and LiabilitiesSegment assets(a) ₱5,252,463,208 ₱57,699,104 ₱869,719,058 ₱59,730,809 ₱117,409,166 ₱6,357,021,345Goodwill 223,777,646 – – – – 223,777,646Investments in and advances to associates and joint ventures 1,906,554,260 – – – – 1,906,554,260Deferred tax assets 21,827,948 336,835 508,392 68,270 80,687 22,822,132Total Assets ₱7,404,623,062 ₱58,035,939 ₱870,227,450 ₱59,799,079 ₱117,489,853 ₱8,510,175,383

Segment liabilities(b) ₱398,165,158 ₱24,127,746 ₱36,852,985 ₱5,885,854 ₱15,962,474 ₱480,994,217Interest-bearing loans and borrowings 876,000,000 – – – – 876,000,000Pension liabilities 17,034,422 5,864,394 10,543,625 1,369,863 3,331,062 38,143,366Obligations under finance lease 12,519,964 – 297,393 225,315 – 13,042,672Total Liabilities ₱1,303,719,544 ₱29,992,140 ₱47,694,003 ₱7,481,032 ₱19,293,536 ₱1,408,180,255

Other Segment InformationCapital expenditures for property and equipment ₱300,595,557Depreciation and amortization 319,744,658Noncash expenses other than depreciation and amortization 83,674,892(a) Segment assets exclude goodwill, investments in and advances to associates and joint ventures and deferred tax assets.(b) Segment liabilities exclude interest-bearing loans and borrowings, pension liabilities and obligations under finance lease.

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Revenues ₱1,433,408,139 ₱85,541,199 ₱355,491,762 ₱49,622,316 ₱76,455,661 ₱2,000,519,077

ResultsIncome before other income and income tax ₱379,325,138 ₱10,377,586 ₱71,145,862 ₱8,363,336 ₱2,879,539 ₱472,091,461Gain on exchange of land 172,137,167 – – – – 172,137,167Equity in net earnings of associates and joint venture 104,909,591 – – – – 104,909,591Interest expense (21,386,099) – (206,305) (211) (1,807) (21,594,422)Interest income 4,808,271 34,259 67,308 25,300 29,982 4,965,120Other income 33,793,540 – 240,531 33,690 – 34,067,761Income tax (62,936,779) – – – – (62,936,779)Net Income ₱610,650,829 ₱10,411,845 ₱71,247,396 ₱8,422,115 ₱2,907,714 ₱703,639,899

EBITDA P=771,505,350

Assets and LiabilitiesSegment assets(a) ₱5,974,150,300 ₱36,315,378 ₱241,086,272 ₱58,998,672 ₱80,890,521 ₱6,391,441,143Goodwill 223,777,646 – – – – 223,777,646Investments in and advances to associates and joint ventures 2,095,160,653 – – – – 2,095,160,653Deferred tax assets 14,685,330 388,592 159,711 – – 15,233,633Total Assets ₱8,307,773,929 ₱36,703,970 ₱241,245,983 ₱58,998,672 ₱80,890,521 ₱8,725,613,075

Segment liabilities(b) ₱489,199,373 ₱47,874,157 ₱43,923,211 P=6,149,169 ₱13,790,561 ₱600,936,471Interest-bearing loans and borrowings 1,092,000,000 – – – – 1,092,000,000Pension liabilities 9,805,782 2,820,342 10,200,780 1,399,753 3,311,598 27,538,255Obligations under finance lease 17,270,230 – 505,352 416,319 – 18,191,901Total Liabilities ₱1,608,275,385 ₱50,694,499 ₱54,629,343 ₱7,965,241 ₱17,102,159 ₱1,738,666,627

Other Segment InformationCapital expenditures for property and equipment ₱1,291,645,137Depreciation and amortization 267,437,553Noncash expenses other than depreciation and amortization 83,862,279(a) Segment assets exclude goodwill, investments in and advances to associates and joint ventures and deferred tax assets.(b) Segment liabilities exclude interest-bearing loans and borrowings, pension liabilities and obligations under finance lease.

.

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4. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the consolidated financial statements requires management to make judgments,estimates and assumptions that affect the amounts reported in the consolidated financial statementsand related notes. The estimates used are based upon management’s evaluation of relevant factsand circumstances as at the date of the consolidated financial statements, giving due considerationto materiality. Actual results could differ from such estimates.

The Group believes the following represents a summary of these significant judgments, estimatesand assumptions and related impact and associated risks in its consolidated financial statements.

JudgmentsIn the process of applying the Group’s accounting policies, management has made the followingjudgments, apart from those involving estimations, which have the most significant effect on theamounts recognized in the consolidated financial statements.

Determination of Control Arising from Management Contracts. The Parent Company hasmanagement contracts with STI Diamond and STI Caloocan. Management has concluded that theParent Company, in substance, has the power to direct their relevant activities and has the means toobtain majority of the benefits of STI Diamond and STI Caloocan, both non-stock corporations,through the management contracts. Management has assessed that it has control of STI Diamond andSTI Caloocan and accordingly, consolidates the two entities effective from the date control wasobtained.

In August 2016, the management contract between the Parent Company and STI Diamond wasterminated. Any rights to the residual interest in STI Diamond were transferred to an entity outside ofthe Group resulting in the deconsolidation of STI Diamond (see Note 18).

Significant Influence on an Associate. The Parent Company has an equity interest of 5.05% in STIHoldings. Management has assessed that it has significant influence by virtue of its poolingagreement with other stockholders of STI Holdings owning 31.12% of the voting stock of STIHoldings resulting in a total voting power of 36.19%. Under this agreement, the Parent Companyand the stockholder will pool their shares in STI Holdings and vote as a block in all matters thatwould require a vote of the shareholders and the BOD. Accordingly, the Parent Company has thepower to participate in the financial and operating policy decisions of STI Holdings and accountsfor the said investment as an associate.

Contingencies. The Group is currently a party in a number of cases involving claims and disputesrelated to collection of receivables and labor cases. The Group’s estimate of the probable costs forthe resolution of these claims has been developed in consultation with outside legal counselshandling defense in these matters and is based upon an analysis of potential results. Managementand its legal counsels believe that the Group has substantial legal and factual bases for its positionand are of the opinion that losses arising from these legal actions, if any, will not have a materialadverse impact on the consolidated financial statements. It is possible, however, that future resultsof operations could be materially affected by changes in the estimates or in the effectiveness ofstrategies relating to these proceedings (see Note 31).

Estimates and AssumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at thefinancial reporting date that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are discussed below.

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Estimating Allowance for Impairment Loss on Loans and Receivables. The Group reviews itsreceivables and advances to associates and joint ventures and other related parties at eachreporting date to assess whether an allowance for impairment loss should be recorded in theconsolidated statement of financial position. In particular, judgment by management is required inthe estimation of the amount and timing of future cash flows when determining the level ofallowance required. Such estimates are based on assumptions about a number of factors andactual results may differ, resulting in future changes to the allowance.

In addition to specific allowance against individually significant receivables and advances, theGroup also makes a collective impairment allowance against exposures which, although notspecifically identified as requiring a specific allowance, have a greater risk of default than whenoriginally granted. This collective allowance is based on any deterioration in the internal rating ofthe receivables and advances since it was granted or acquired.

Receivables, net of allowance for doubtful accounts, amounted to ₱351.6 million and₱254.8 million as at March 31, 2017 and 2016, respectively. Provision for impairment loss onreceivables recognized in the consolidated financial statements amounted to ₱66.1 million,₱70.6 million and ₱71.3 million in 2017, 2016 and 2015, respectively (see Note 6).

Estimating Useful Lives of Nonfinancial Assets. Management determines the estimated usefullives and the related depreciation and amortization charges for its property and equipment,investment properties, excluding land, and intangible assets based on the period over which theproperty and equipment, investment properties and intangible assets are expected to provideeconomic benefits. Management’s estimation of the useful lives of property and equipment,investment properties and intangible assets is based on a collective assessment of industrypractice, internal technical evaluation and experience with similar assets while for intangibleassets with a finite life, estimated useful life is based on the economic useful benefit of theintangible assets. These estimations are reviewed periodically and could change significantly dueto physical wear and tear, technical or commercial obsolescence and legal or other limits on theuse of the assets. A reduction in the estimated useful lives of property and equipment, investmentproperties and intangible assets would increase recorded expenses and decrease noncurrent assets.

The lease contracts covering the land, where the building, building improvements and leaseholdimprovements of De Los Santos-STI College were built, were terminated effective March 31,2015. In addition, the lease contract covering the property, where the leasehold improvements ofiACADEMY were built, was terminated effective July 31, 2014. Under the lease contracts,ownership of the building and improvements and leasehold improvements will remain with thelessor upon termination of the lease contracts. Thus, De Los Santos-STI College andiACADEMY revised the estimated useful lives of their building and improvements and leaseholdimprovements to consider the termination of the lease agreements. The increase in depreciationexpense as a result of the change in the useful life of the asset amounted to ₱9.3 million in 2015.The change resulted in a reduction of future yearly depreciation expense amounting to₱2.2 million in subsequent years. Consequently, costs of certain fully depreciated leaseholdimprovements and signage amounting to ₱33.0 million and ₱0.9 million, respectively, werewritten off in the books of iACADEMY in 2015.

There were no other changes in the estimated useful lives of the Group’s property and equipment,investment properties and intangible assets in 2017, 2016 and 2015.

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The carrying values of nonfinancial assets subject to depreciation and amortization are as follows:

2017 2016Property and equipment (see Note 9) ₱3,152,009,843 ₱2,952,559,965Investment properties (see Note 10) 554,868,715 583,498,842Intangible assets (see Note 14) 22,395,838 34,131,854

Impairment of Nonfinancial Assets. PFRS requires nonfinancial assets to be tested for impairmentwhen certain impairment indicators are present, irrespective of whether there are any indicationsof impairment. Nonfinancial assets include property and equipment, investment properties,investment in and advances to associates and joint ventures and intangible assets and othernoncurrent assets.

Management is required to make estimates and assumptions to determine the future cash flows tobe generated from the continued use and ultimate disposition of these assets in order to determinethe value of these assets. While the Group believes that the assumptions used are reasonable andappropriate, these estimates and assumptions can materially affect the consolidated financialstatements. Future adverse events may cause management to conclude that the affected assets areimpaired and may have a material impact on the financial condition and results of operations ofthe Group. The carrying value of property and equipment, investment properties, investment inand advances to associates and joint ventures and intangible assets and other noncurrent assets aredisclosed in Notes 9, 10, 11 and 14, respectively. There were no impairment loss in 2017, 2016and 2015.

Goodwill. Acquisition method requires extensive use of accounting estimates and judgments toallocate the purchase price to the fair market values of the acquiree’s identifiable assets, liabilitiesand contingent liabilities at the acquisition date. It also requires the acquirer to recognize anygoodwill as the excess of the acquisition cost over the fair value of the acquiree’s identifiableassets, liabilities and contingent liabilities. The Group’s business acquisitions have resulted ingoodwill which is subject to an annual impairment testing. This requires an estimation of thevalue in use of the CGUs to which the goodwill is allocated. Estimating the value in use requiresthe Group to make an estimate of the expected future cash flows from the CGU and also to choosea suitable discount rate in order to calculate the present value of those cash flows.

The recoverable amounts of CGUs have been determined based on value in use calculations usingcash flow projections covering a five-year period based on long-range plans approved bymanagement.

Management used an appropriate discount rate for cash flows equal to the prevailing rates ofreturn for a Group having substantially the same risks and characteristics. Management used theweighted average cost of capital wherein the source of the costs of equity and debt financing areweighted. The weighted average cost of capital is the overall required return on the Group. Adiscount rate of 10.0% was used as at March 31, 2017, 2016 and 2015. The Group’s growth ratesin extrapolating its cash flows beyond the period covered by its recent budgets ranged from 5.0%to 10.0%.

Other assumptions used in the calculations for impairment testing of goodwill are projection ratesof new students, retention rates of old students, tuition fee increase rates and inflation rates.Current and historical transactions have been used as indicators of future transactions.

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Impairment testing as at March 31, 2017, 2016 and 2015 showed that the CGUs recoverableamounts were greater than their carrying amounts, and there were no events during the yearsended March 31, 2017, 2016 and 2015 that would eliminate such difference, hence, no provisionfor impairment in value was recognized in 2017, 2016 and 2015. Goodwill, net of allowance forimpairment loss, amounted to ₱223.8 million as at March 31, 2017 and 2016 (see Note 14).

Pension Cost. The determination of the obligation and cost for pension benefits is dependent onthe selection of certain assumptions provided by the Group to its actuaries in calculating suchamounts. Those assumptions were described in Note 25 and included among others, discount rateand future salary increases. In accordance with Revised PAS 19, Employee Benefits, actualresults that differ from the Group’s assumptions are included in OCI and are not reclassified toprofit or loss in subsequent periods. While it is believed that the Group’s assumptions arereasonable and appropriate, significant differences in actual experience or significant changes inassumptions may materially affect the Group’s pension and other pension obligations.

The carrying values of pension assets and pension liabilities as at March 31, 2017 and 2016 aredisclosed in Note 25 to the consolidated financial statements.

Deferred Tax Assets. Deferred tax assets are recognized for unused tax losses to the extent that itis probable that taxable profit will be available against which the losses can be utilized. Significantmanagement judgement is required to determine the amount of deferred tax assets that can berecognized, based upon the likely timing and the level of future taxable profits together with futuretax planning strategies.

Deferred tax assets recognized as at March 31, 2017 and 2016 are disclosed in Note 27 to theconsolidated financial statements. Unrecognized deferred tax assets on net operating loss carry-over (NOLCO) and other losses of certain subsidiaries amounted to ₱75.0 million and₱87.5 million as at March 31, 2017 and 2016, respectively. These losses relate to subsidiaries thathave a history of losses, do not expire and may not be used to offset taxable income elsewhere inthe Group. The subsidiaries neither have any taxable temporary difference nor any tax planningopportunities available that could partly support the recognition of these losses as deferred taxassets. On this basis, the Group has determined that it cannot recognize deferred tax assets on thetax losses carried forward.

5. Cash and Cash Equivalents


2017 2016Cash on hand and in banks ₱2,172,952,624 ₱540,097,246Cash equivalents 707,330,107 2,073,826

₱2,880,282,731 ₱542,171,072

Cash in banks and cash equivalents earn interest at their respective deposit and investment rates.

Interest earned from cash in banks and cash equivalents amounted to ₱1.4 million, ₱2.8 millionand ₱1.2 million in 2017, 2016 and 2015, respectively (see Note 20).

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6. Receivables


2017 2016Tuition and other school fees ₱298,640,754 ₱230,573,439Educational services 47,862,238 35,641,080Rent, utilities and other related receivables

(see Note 28) 41,014,358 29,395,914Advances to officers and employees (see Note 28) 19,497,646 20,785,180Current portion of advances to associates, joint

ventures and other related parties (see Note 28) 143,571 252,767Others 23,958,533 23,232,867

431,117,100 339,881,247Less allowance for doubtful accounts 79,534,228 85,083,311

₱351,582,872 ₱254,797,936

The terms and conditions of the receivables are as follows:

a. Tuition and other school fees include receivables from students and DepED. Thesereceivables are noninterest-bearing and are normally collected on or before the date of majorexaminations while receivables from DepEd are expected to be collected within the year.

b. Educational services receivables pertain to receivables from franchisees arising fromeducational services, royalty fees and other charges. These receivables are generallynoninterest-bearing and are normally collected within 30 days. Interest is charged on past dueaccounts.

Interest earned from past due accounts amounted to ₱1.5 million, ₱1.4 million and₱2.9 million in 2017, 2016 and 2015, respectively (see Note 20).

c. Rent, utilities and other related receivables are normally collected within the next financialyear.

d. Advances to officers and employees are normally liquidated within one month.

e. For terms and conditions relating to advances to associates, joint ventures and other relatedparties, refer to Note 28.

f. Other receivables are expected to be collected within the next financial year.

The movements in the allowance for doubtful accounts as a result of individual and collectiveassessments are as follows:

2017Tuition

and OtherSchool Fees Others Total

Balance at beginning of year ₱74,199,787 ₱10,883,524 ₱85,083,311Provisions (see Note 23) 71,358,231 (5,254,102) 66,104,129Effect of derecognition of a

subsidiary (see Notes 2 and 34) (7,012,178) – (7,012,178)Write-off (62,856,047) (1,784,987) (64,641,034)Balance at end of year ₱75,689,793 ₱3,844,435 ₱79,534,228

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2016Tuition

and OtherSchool Fees Others Total

Balance at beginning of year ₱76,640,577 ₱7,354,037 ₱83,994,614Provisions (see Note 23) 67,046,653 3,529,487 70,576,140Write-off (69,487,443) – (69,487,443)Balance at end of year ₱74,199,787 ₱10,883,524 ₱85,083,311

As at March 31, 2017 and 2016 allowance for doubtful accounts amounting to ₱3.8 million and₱10.9 million, respectively, relates to individually significant accounts under “Others” that wereassessed as impaired. The remaining balance of ₱75.7 million and ₱74.2 million as at March 31,2017 and 2016, respectively, relates to accounts under “Tuition and Other School Fees” that werecollectively assessed as impaired.

7. Inventories


2017 2016At net realizable value:

Educational materials ₱106,836,523 ₱29,965,380Promotional materials 8,040,073 5,076,920School materials and supplies 2,120,247 1,174,914

₱116,996,843 ₱36,217,214

The cost of inventories amounted to ₱127.7 million and ₱46.9 million as at March 31, 2017 and2016, respectively. Allowance for inventory obsolescence amounted to ₱10.7 million as atMarch 31, 2017 and 2016. Provision for inventory obsolescence resulting from excess of costover net realizable value of inventories amounted to nil in 2017 and 2016 and ₱0.3 million in 2015(see Note 23).

Inventories charged to cost of educational materials and supplies sold amounted to ₱115.4 million₱51.5 million and ₱40.7 million in 2017, 2016 and 2015, respectively. (see Note 22).

8. Prepaid Expenses and Other Current Assets


2017 2016Prepaid taxes ₱91,019,868 ₱72,206,752Prepaid rent 8,460,801 6,115,222Excess contributions to CEAP 3,603,282 3,153,010Software maintenance cost 3,289,983 2,103,097Prepaid insurance 498,519 297,991Others 3,056,096 3,064,533

₱109,928,549 ₱86,940,605

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Prepaid taxes represent input VAT, prepaid business and real property taxes. Most of the inputVAT arose from the acquisition of properties in EDSA, Pasay City which will be the site of thenew STI Academic Center Pasay- EDSA. Prepaid business and real property taxes will beamortized within the year.

Prepaid rent represents advance rent paid for the lease of land and building spaces which shall beapplied to the monthly rental in accordance with the terms of the lease agreements.

Excess contributions to CEAP pertain to contributions made by De Los Santos-STI College andSTI QA to CEAP which are already considered forfeited pension benefits of those employees whocan no longer avail their pension benefits either because they did not meet the required tenure often years or they did not reach the retirement age of sixty when they left the service or when DeLos Santos-STI College or STI QA has already advanced the benefits of qualified employees. Theexcess contributions will be offset against De Los Santos-STI College’s and STI QA’s futurerequired contributions to CEAP.

Software maintenance cost represents support and maintenance charges for the Group’saccounting and enrollment systems which are amortized within one year from date of contract.

Prepaid insurance includes insurance coverage for fire and building, health coverage of employeesand life and accident insurance of the students which was prepaid by the Group as atMarch 31, 2017.

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9. Property and Equipment


2017

Land Buildings

Officeand SchoolEquipment

OfficeFurniture


Improvements

TransportationEquipment

(see Note 26)

ComputerEquipment

andPeripherals Library Holdings


Cost, Net of Accumulated Depreciationand Amortization

Balance at beginning of year ₱1,530,686,496 ₱2,611,973,240 ₱123,477,116 ₱72,634,888 ₱77,283,217 ₱15,971,780 ₱32,238,826 ₱18,980,898 ₱162,252,047 ₱4,645,498,508Additions 552,362,186 256,295,159 44,292,692 25,690,175 12,183,886 6,313,596 40,107,689 4,324,570 41,883,725 983,453,678Disposal – – (75,257) (9,680) – (132,300) – – – (217,237)Effect of derecognition of a subsidiary – – (12,714,559)) (4,737,699) (43,474,010) (3,400,068) (6,018,477) (1,508,141) (9,949,456) (81,802,410)Reclassification – 170,903,140 – – (7,131,005) – – – (163,772,135) –Depreciation and amortization

(see Notes 21 and 23) – (148,228,687) (47,218,838) (26,261,881) (17,350,057) (8,097,571) (26,722,594) (7,580,205) – (281,459,833))Balance at end of year ₱2,083,048,682 ₱2,890,942,852 ₱107,761,154 ₱67,315,803 ₱21,512,031 ₱10,655,437 ₱39,605,444 ₱14,217,122 ₱30,414,181 ₱5,265,472,706



The cost of fully depreciated property and equipment still used by the Group as at March 31, 2017 amounted to ₱826.6 million.

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2016

Land Buildings

Officeand SchoolEquipment

OfficeFurniture


Improvements

TransportationEquipment

(see Note 26)

ComputerEquipment

andPeripherals Library Holdings


Cost, Net of Accumulated Depreciationand Amortization

Balance at beginning of year ₱1,530,686,496 ₱2,674,436,952 ₱125,543,337 ₱85,567,533 ₱86,388,152 ₱22,339,075 ₱39,581,343 ₱23,465,907 ₱43,467,820 ₱4,631,476,615Additions – 38,497,012 46,272,218 11,671,343 17,225,044 4,289,329 17,673,462 4,427,191 160,539,958 300,595,557Disposal – – – – – – (16,125) – – (16,125)Reclassification – 36,475,559 – – 5,280,172 – – – (41,755,731) –Depreciation and amortization

(see Notes 21 and 23) – (137,436,283) (48,338,439) (24,603,988) (31,610,151) (10,656,624) (24,999,854) (8,912,200) – (286,557,539)Balance at end of year ₱1,530,686,496 ₱2,611,973,240 ₱123,477,116 ₱72,634,888 ₱77,283,217 ₱15,971,780 ₱32,238,826 ₱18,980,898 ₱162,252,047 ₱4,645,498,508



The cost of fully depreciated property and equipment still used by the Group as at March 31, 2016 amounted to ₱710.2 million.

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Additions

Acquisitions. In January 2017, STI ESG purchased three parcels of land in P. Celle corner EDSA,Pasay City with a combined land area of 3,911 square meters for a total cost of ₱552.4 million. Thiswill be the site of the nine-storey STI Academic Center Pasay-EDSA which is expected toaccommodate up to 12,400 senior high school and college students.

Property and Equipment under Construction. As at March 31, 2017, the construction in-progressaccount includes costs incurred for the construction of classrooms and faculty rooms in STIBatangas and the renovation works in STI Novaliches. The related contract costs amounted to₱38.8 million, inclusive of materials, cost of labor and overhead and all other costs necessary forthe completion of the projects. The projects are expected to be completed by end of July 2017.

As at March 31, 2016, the construction in-progress account includes costs incurred for theconstruction of the STI Las Piñas campus. The related contract costs amounted to ₱497.9 million,inclusive of materials, cost of labor, overhead, equipment, furniture and fixtures and all other costsnecessary for the completion of the project. The construction was completed in July 2016.

Capitalized Borrowing Costs. Total borrowing costs capitalized as part of property and equipmentamounted to nil and ₱0.6 million in 2017 and 2016, respectively. The average interestcapitalization rates were nil and 4.75% in 2017 and 2016, respectively, which were the effectiverate of the general borrowings.

Finance LeasesCertain transportation equipment were acquired under finance lease agreements. The net bookvalue of these equipment amounted to ₱10.4 million and ₱14.7 million as at March 31, 2017 and2016, respectively (see Note 26).

CollateralsTransportation equipment, which were acquired under finance lease, are pledged as security forthe related finance lease liabilities as at March 31, 2017 and 2016.

10. Investment Properties


2017Land Buildings Total

Cost - Balance at beginning and end of

year ₱23,986,424 ₱636,233,550 ₱660,219,974Accumulated depreciation: Balance at beginning of year – 52,734,708 52,734,708 Depreciation (see Notes 23) – 28,630,127 28,630,127 Balance at end of year – 81,364,835 81,364,835Net book value ₱23,986,424 ₱554,868,715 ₱578,855,139

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2016Land Buildings Total

Cost: Balance at beginning of year ₱23,986,424 ₱629,390,918 ₱653,377,342 Additions – 6,842,632 6,842,632 Balance at end of year 23,986,424 636,233,550 660,219,974Accumulated depreciation: Balance at beginning of year – 24,104,580 24,104,580 Depreciation (see Notes 23) – 28,630,128 28,630,128 Balance at end of year – 52,734,708 52,734,708Net book value ₱23,986,424 ₱583,498,842 ₱607,485,266

The fair values of investment properties were determined by an independent professionallyqualified appraiser. The fair value represents the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between market participants at themeasurement date.

LandLevel 3 fair value of land has been derived using the sales comparison approach. The salescomparison approach is a comparative approach to value that considers the sales of similar orsubstitute properties and related market data and establishes a value estimate by process involvingcomparison. Listings and offerings may also be considered. Sales prices of comparable land inclose proximity (external factor) are adjusted for differences in key attributes (internal factors)such as location and size.

The following table shows the valuation technique used in measuring the fair value of the land aswell as the significant unobservable inputs used:

Fair value as at March 31, 2017 ₱46,860,000Valuation technique Sales comparison approachUnobservable input Net price per square meterRelationship of unobservable inputs to fair value The higher the price per square meter,

the higher the fair value

The highest and best use of the land is commercial utility.

BuildingsLevel 3 fair values of buildings have also been derived using the sales comparison approach.

The following table shows the valuation technique used in measuring the fair value of the buildingas well as the significant unobservable inputs used:

Fair value as at March 31, 2017 ₱920,858,000Valuation technique Sales comparison approachUnobservable input Net price per square meterRelationship of unobservable inputs to fair value The higher the price per square meter,

the higher the fair value

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The highest and best use of the buildings is commercial utility.

RentalRental income earned from investment properties amounted to ₱83.9 million, ₱33.7 million and₱6.5 million in 2017, 2016 and 2015, respectively (see Note 26). Direct operating expenses,including repairs and maintenance, arising from investment properties amounted to ₱0.8 million,₱1.0 million and ₱1.6 million in 2017, 2016 and 2015, respectively.

11. Investments in and Advances to Associates and Joint Ventures

The details and movements in this account follow:

2017 2016Investments at EquityCost:

Balance at beginning of year ₱743,245,137 ₱673,261,937Acquisitions – 69,983,200Cancellation of subscription to Maestro Holdings (17,499,769) –Disposal (1,759,990) –Balance at end of year 723,985,378 743,245,137

Accumulated equity in net earnings:Balance at beginning of year 1,058,978,749 1,015,974,623Equity in net earnings (loss) (158,823,602) 54,026,334Dividends received (10,814,192) (11,022,208)Balance at end of year 889,340,955 1,058,978,749

Accumulated share in associates’ other comprehensiveincome:Balance at beginning of year 104,330,374 405,874,093Unrealized mark-to-market (MTM) loss on AFS financial assets (171,932,663) (302,105,162)Remeasurement gain on pension liability 18,979,724 561,443Balance at end of year (48,622,565) 104,330,374

Share in associates’ other equity reserves 728,649 –1,565,432,417 1,906,554,260

Advances (see Note 28) 37,277,147 35,633,303Less allowance for impairment loss 37,277,147 35,633,303

– –₱1,565,432,417 ₱1,906,554,260

Movements in the allowance for impairment in value of investments and advances are as follows:

2017 2016Balance at beginning of year ₱35,633,303 ₱35,113,889Provision for impairment (see Note 23) 1,643,844 519,414Balance at end of year ₱37,277,147 ₱35,633,303

The associates and joint ventures of the Group are all incorporated in the Philippines.

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The carrying values of the Group’s investments in and advances to associates and joint venturesare as follows:

2017 2016Associates:

Maestro Holdings ₱1,053,968,500 ₱1,389,114,547STI Holdings 469,608,919 481,740,744STI Alabang 20,864,819 18,365,648GROW 15,507,702 12,111,456STI Accent 37,277,147 35,633,303STI Marikina – 144,045Synergia – 46,969

Joint venture -PHEI (see Note 12) 5,482,477 5,030,851

1,602,709,564 1,942,187,563Allowance for impairment loss 37,277,147 35,633,303

₱1,565,432,417 ₱1,906,554,260

Information about associates and indirect associates and their major transactions are discussedbelow:

Maestro Holdings. Maestro Holdings is a holding company that holds investments in PhilPlans,PhilhealthCare, Inc. (PhilCare), Philippine Life Financial Assurance Corporation (PhilLife) andBanclife Insurance Co., Inc. (Banclife). PhilPlans is a leading pre-need company, providinginnovative pension, education and life plans. It owns 65% of Rosehills Memorial Management,Inc. (RMMI), a company engaged in the operation and management of a memorial park, memorialand interment services and sale of memorial products. PhilCare is a Health MaintenanceOrganization (HMO) that provides effective and quality health services and operates through itsown clinics and through nationwide accredited clinics and hospitals. PhilLife provides financialservices, such as individual, family and group life insurance, investment plans and loan privilegeprograms. Banclife is formerly engaged in life insurance business in the Philippines. It ceasedoperations in March 2013.

On December 7, 2015, the BOD of Maestro Holdings approved the opening for subscription of437,500 common shares out of its authorized but unissued common stock at a subscription price of₱800 per share or an aggregate subscription price of ₱350.0 million to all stockholders of record ofMaestro Holdings in accordance with their existing shareholdings, subject to the conditions that:(a) each stockholder shall pay 50% of the stockholder’s subscription on or before December 18,2015; and (b) the balance of each stockholder’s subscription shall be payable upon call by theBOD. The purpose of the said capital call is to raise funds for capital infusion in PhilLife and forfuture investments. In 2016, the Parent Company subscribed to an additional 87,479 shares ofMaestro Holdings amounting to ₱70.0 million. As at March 31, 2016, the Parent Company’soutstanding subscriptions payable amounted to ₱17.5 million (see Note 16). On June 10, 2016,the BOD of Maestro Holdings cancelled the balance of the subscription due from its stockholders.

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Condensed financial information of Maestro Holdings is as follows:

March 312017 2016 2015

Current assets ₱5,578,920,752 ₱4,534,835,461 ₱9,609,142,851Noncurrent assets 39,175,515,283 40,895,899,440 36,107,355,841Current liabilities (5,538,146,733) (4,574,914,973) (1,308,173,698)Noncurrent liabilities (33,588,838,073) (33,586,087,750) (36,141,119,694)Total equity 5,627,451,229 7,269,732,178 8,267,205,300Less equity attributable to equity

holders of non-controllinginterests 357,608,729 324,159,443 306,697,322

Equity attributable to equity holdersof the parent company 5,269,842,500 6,945,572,735 7,960,507,978

Proportion of the Group’s ownership 20% 20% 20%Carrying amount of the investment ₱1,053,968,500 ₱1,389,114,547 ₱1,592,101,596

For the Years Ended March 312017 2016 2015

Revenues ₱9,074,321,308 ₱9,031,836,809 ₱8,092,366,742Income (loss) from operations (791,149,363) 163,542,588 537,593,533Other comprehensive loss (763,752,420) (1,510,330,615) (63,921,622)Total comprehensive income (loss) (1,554,901,783) (1,346,788,027) 473,671,911Less total comprehensive income

attributable to equity holders ofnon-controlling interests 36,996,580 18,390,859 53,131,598

Total comprehensive income (loss)attributable to equity holders ofthe parent company (1,591,898,363) (1,365,178,886) 420,540,313

Proportion of the Group’s ownership 20% 20% 20%Share in total comprehensive income

(loss) (₱318,433,572) (₱273,035,777) ₱84,108,063

In 2016, Maestro Holdings subscribed to additional 1,629,682,642 shares in PhilLife for₱39.0 million. The additional subscription increased Maestro Holdings’ interest in PhilLife from70.00% to 70.60% which resulted in an equity adjustment of ₱3.6 million. The Group recorded itsshare in the adjustment amounting to ₱0.7 million under “Other equity reserve” account in theconsolidated statement of financial position.

On January 15, 2016, Maestro Holdings entered into a Contract to Sell with Eujo Philippines, Inc.(Eujo) for the latter’s sale of its equity interest in PhilLife. On December 28, 2016, the partiesamended the contract to sell with respect to the inclusion of certain conditions precedent to thecompletion of the sale and the agreement of the parties prior to the fulfillment of such conditionswhich includes the execution and delivery of an irrevocable voting proxy over the PhilLife sharesin favor of Maestro Holdings and the delivery of duly endorsed original stock certificates coveringthe PhilLife shares to Maestro Holdings.

The amended contract to sell also provides that if PhilLife fails to achieve either conditionprecedent within the prescribed period, Maestro Holdings shall have the option to cancel thecontract to sell and the amended contract to sell and return the shares as well as the proxiescovering the shares to Eujo or refrain from delivering the balance to Eujo and cause the executionby Eujo of a deed of absolute sale covering the shares. If Maestro Holdings opts to cancel the

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contract to sell and the amended contract to sell, Eujo shall return the initial payment to MaestroHoldings within thirty days from receipt of a notice to this effect.

As at December 31, 2016, Maestro Holdings paid a total of ₱178.9 million initial payments whichare recognized under “Deposit for stock purchase” account. The payment of the balance of thepurchase price amounting to ₱19.9 million shall be made within thirty days from the date offulfillment of either of the agreed conditions precedent to the completion of the sale.

Upon consummation of the sale, Maestro Holdings will increase its interest in PhilLife from70.60% to 90.70%.

Based on the Philippine Insurance Commission letter received by the Group dated November 6,2015, service assets - memorial lots bundled with life and pension products constitute neitherequity nor debt securities. Service assets - memorial lots are memorial lots to be sold and bundledwith life and pension products with the intention of reducing PhilPlan’s liabilities in the futurewhen the benefits are claimed. The cost of memorial lots is initially valued at acquisition cost atthe time of purchase. Subsequently, the same is valued at fair value through profit or loss at theend of the applicable financial reporting period. The fair market value of the unsold memorial lotsis determined by an independent licensed appraiser accredited by Bangko Sentral ng Pilipinas(BSP) and/or SEC. The Group’s share in the increase in the fair value of the service assets -memorial lots of Maestro Holdings amounted to ₱376.9 million, ₱391.6 million and nil for theyears ended March 31, 2017, 2016 and 2015, respectively. The increase in fair value for the yearsended March 31, 2017 relates to newly acquired lots in 2016.

In addition, Maestro Holdings assessed the fair value of AFS financial assets that are held in trustfunds and determined that certain AFS financial assets have declined below cost by ₱430.1million, ₱212.3 million as at March 31, 2017 and 2016, respectively. The fair value decline isconsidered significant or prolonged which is an objective evidence of impairment underaccounting principles generally accepted in the Philippines. The Group’s share in the impairmentof Maestro Holdings’ AFS financial assets amounted to ₱86.0 million, ₱42.4 million and nil forthe years ended March 31, 2017, 2016 and 2015, respectively.

STI Holdings. STI Holdings is a holding company whose primary purpose is to invest in,purchase or otherwise acquire and own, hold, use, sell, assign, transfer, lease, mortgage, pledge,exchange, or otherwise dispose of real properties as well as personal and movable property of anykind and description, including shares of stock, bonds, debentures, notes, evidence of indebtednessand other securities or obligations of any corporation or corporations, association or associations,domestic or foreign and to possess and exercise in respect thereof all the rights, powers andprivileges of ownership, including all voting powers of any stock so owned, but not to act asdealer in securities and to invest in and manage any company or institution. STI Holdings aims tofocus on education and education-related activities and investments. In 2017, the Group disposedof a portion of its investment in STI Holdings, or 0.02% interest, resulting in a gain of₱0.2 million.

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Condensed financial information of STI Holdings is as follows:

March 312017 2016 2015

Current assets ₱60,182,112 ₱22,147,052 ₱22,147,052Noncurrent assets 17,998,069,850 17,306,913,668 17,306,913,668Current liabilities (181,738,306) (376,507,448) (376,507,448)Noncurrent liabilities (174,861,700) (174,861,700) (174,861,700)Total equity 17,701,651,956 16,777,691,572 16,777,691,572Less cumulative dividend income

from STI ESG 1,939,337,265 838,269,146 838,269,146Total equity, net of cumulative

dividend income from STI ESG 15,762,314,691 15,939,422,426 15,939,422,426Proportion of the Group’s ownership 5.05% 5.07% 5.07%Equity attributable to equity holders

of the parent company 795,996,892 808,128,717 808,128,717Excess of carrying value of net assets

over acquisition cost (326,387,973) (326,387,973) (326,387,973)Carrying amount of the investment ₱469,608,919 ₱481,740,744 ₱481,740,744

For the Years Ended March 312017 2016 2015

Revenues ₱1,082,231,352 ₱812,128,025 ₱263,395,981Expenses 24,447,355 190,085,979 24,243,334Income from operations 1,057,783,997 622,042,046 239,152,647Other comprehensive loss - (37,350) (39,085)Total comprehensive income 1,057,783,997 622,004,696 239,113,562Less dividend income from the STI

ESG 1,064,218,063 246,653,915 246,665,535Total comprehensive income (loss)

attributable to equity holders ofthe parent company (6,449,055) 375,350,781 (7,551,973)

Proportion of the Group’s ownership 5.05% 5.07% 5.07%Share in total income (loss) (₱325,677) ₱19,030,285 (₱382,885)

Others. The carrying amount of the Group’s investments in STI Alabang, STI Accent, GROW,STI Marikina and Synergia represents the aggregate carrying values of individually immaterialassociates. The Group’s share in the aggregate financial information of individually immaterialassociates follows:

March 31,2017 2016 2015

Current assets ₱124,099,948 ₱97,898,857 ₱81,931,290Noncurrent assets 34,475,792 40,206,299 53,527,291Current liabilities (112,396,042) (91,631,271) (92,496,192)Noncurrent liabilities (5,400,271) (13,170,177) (23,546,207)

₱40,779,427 ₱33,303,708 ₱19,416,182

For the Year Ended March 31,2017 2016 2015

Revenues ₱331,404,510 ₱144,896,937 ₱99,882,161Expenses 303,618,688 122,266,369 101,053,197

Total comprehensive income (loss) 27,785,822 22,630,568 (1,171,036)

Share in comprehensive income ₱6,519,408 ₱5,735,952 ₱262,523

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STI Accent is engaged in providing medical and other related services. It ceased operations onJune 20, 2012 after the contract of usufruct between STI Accent and Dr. Fe Del Mundo MedicalCenter Foundation Philippines, Inc. to operate the hospital and its related healthcare servicebusinesses was rescinded in May 2012. Thus, the Group ceased the recognition of its share in thelosses of STI Accent. As at March 31, 2017, 2016 and 2015, allowance for impairment loss on theParent Company’s investment in STI Accent and related advances amounted to ₱37.2 million,₱35.6 million and ₱35.1 million, respectively.

For terms and conditions relating to advances to associates and joint ventures, refer to Note 28.

12. Interests in Joint Ventures

PHEIOn March 19, 2004, the Parent Company, together with the University of Makati (UMak) andanother shareholder, incorporated PHEI in the Philippines. The Parent Company and UMak eachowns 40.00% of the equity of PHEI with the balance owned by another shareholder. PHEI isenvisioned as the College of Nursing of UMak. The following are certain key terms under theagreement signed in 2003 by the Parent Company and UMak:

a. The Parent Company shall be primarily responsible for the design of the curriculum for theBachelor’s Degree in Nursing (BSN) and Master’s Degree in Nursing Informatics with suchcurriculum duly approved by the University Council of UMak;

b. UMak will allow the use of its premises as a campus of BSN while the premises ofiACADEMY will be the campus of the post graduate degree; and the Parent Company willrecruit the nursing faculty while UMak will provide the faculty for basic courses that are non-technical in nature.

STI-PHNSOn September 16, 2005, GROW and PHNS International Holdings, Inc., a company incorporatedin Dallas, Texas, USA, entered into a Joint Venture Agreement (JVA). Under the JVA, the partieshave agreed to incorporate a joint venture company in the Philippines and set certain terms withregard to capitalization, organization, conduct of business and the extent of their participation inthe management of affairs of the joint venture company for the primary purpose of engaging,directly or indirectly, in the business of medical transcription and other related business in thePhilippines. As a result of the JVA, the parties incorporated STI-PHNS where each have a50.00% ownership of the outstanding capital stock of STI-PHNS.

A Deed of Assignment between GROW and STI was executed on May 5, 2006 to transfer all therights of GROW in the JVA to the latter.

STI-PHNS ceased operations in 2014. On April 7, 2016, the BOD approved a resolutionregarding the cessation of the STI-PHNS’s business activities and the closure of its operationseffective March 1, 2013. On the same date, the BOD approved the resolution to shorten thecorporate term of STI-PHNS until June 30, 2017. On July 12, 2016, the amendment to STI-PHNSArticles of Incorporation for shortening of the corporate term was approved by the SEC

The Group’s share in the net earnings (losses) of its joint ventures, which are individuallyimmaterial, amounted to ₱0.5 million, ₱0.7 million and ₱0.4 million in 2017, 2016 and 2015,respectively. The unrecognized share in the net losses of the joint ventures, which are individuallyimmaterial, amounted to ₱4.1 million as at March 31, 2017, 2016 and 2015.

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13. Available-for-Sale Financial Assets


2017 2016Quoted equity shares - at fair value ₱3,808,240 ₱2,961,120Unquoted equity shares - at cost 47,062,515 47,062,515

₱50,870,755 ₱50,023,635

a. Quoted Equity Shares

The quoted equity shares above pertain to listed shares in the PSE as well as traded clubshares. These are carried at fair value with the cumulative changes in fair values presented asa separate component of equity under the “Unrealized mark-to-market loss on available-for-sale financial assets” account in the consolidated statements of financial position. The fairvalues of these shares are based on the quoted market price as at financial reporting date.

The rollforward analysis of the “Unrealized mark-to-market loss on available-for-salefinancial assets” account as shown in the equity section of the consolidated statements offinancial position follows:

2017 2016Balance at beginning of year (₱871,689) (₱531,785)Unrealized MTM gain (loss) on AFS financial assets 847,120 (339,904)Balance at end of year (₱24,569) (₱871,689)

Dividend income earned from AFS financial assets amounted to ₱3.3 million, ₱2.8 millionand ₱1.5 million in 2017, 2016 and 2015, respectively.

b. Unquoted Equity Shares

Unquoted equity shares pertain to unlisted shares of stocks. The fair value of these unquotedequity shares is not reasonably determinable due to the unpredictable nature of future cashflows and the lack of a suitable method of arriving at a reliable fair value, hence, these arecarried at cost less impairment, if any.

c. Pledged Shares

On June 3, 2013, the Parent Company executed a deed of pledge on all of its De Los SantosMedical Center shares in favor of Neptune Stroika Holdings, Inc., a wholly-owned subsidiaryof Metro Pacific Investments Corporation (MPIC), to cover the indemnity obligations of theParent Company enumerated in its investment agreement entered into in 2013 with MPIC.The completion of MPIC’s subscription resulted in the cessation of De Los Santos-STIMegaclinic and De Los Santos Medical Center as associates of the Group effective June 2013.Consequently, the Group’s effective percentage ownership in De Los Santos Medical Centerand De Los Santos - STI Megaclinic were diluted and such were reclassified to AFS financialassets. The carrying value of the investment in De Los Santos Medical Center amounted to₱25.9 million as at March 31, 2017 and 2016.

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14. Goodwill, Intangible and Other Noncurrent Assets


2017 2016Goodwill ₱223,777,646 ₱223,777,646Deposits for asset acquisitions 72,764,000 –Rental deposits (see Note 26) 39,555,558 37,980,890Intangible assets 22,395,838 34,131,854Advances to suppliers 17,258,087 53,072,904Others 2,489,774 8,701,461

₱378,240,903 ₱357,664,755

GoodwillGoodwill acquired through business combinations have been allocated to the following schoolswhich are considered separate CGUs:

2017 2016STI Caloocan ₱64,147,877 ₱64,147,877STI Novaliches (see Note 18) 21,803,322 –STI Taft 19,030,844 19,030,844STI Tuguegarao 13,638,360 13,638,360STI Lipa (see Note 35) 8,857,790 8,857,790STI Dagupan 6,835,818 6,835,818STI Tanauan (see Note 35) 4,873,058 4,873,058STI Iloilo (see Note 35) 3,806,173 3,806,173STI Pagadian (see Note 35) 3,396,880 3,396,880STI Batangas (see Note 35) 2,585,492 2,585,492STI Diamond (see Note 18) – 21,803,322Merged entities (see Note 1):

STI Cubao 28,327,670 28,327,670STI Global City 11,360,085 11,360,085STI Edsa Crossing 11,213,342 11,213,342STI Ortigas-Cainta 7,476,448 7,476,448STI Meycauayan 5,460,587 5,460,587STI Makati 3,261,786 3,261,786STI Las Piñas 2,922,530 2,922,530STI Kalibo 2,474,216 2,474,216STI Naga 2,305,368 2,305,368

₱223,777,646 ₱223,777,646

As a result of the deconsolidation of STI Diamond as discussed in Note 18, the Group reallocatedthe associated goodwill to STI Novaliches as at March 31, 2017. The assets and liabilities of STIDiamond have all been transferred to STI Novaliches.

Management performs its annual impairment test every March 31 of the year for all the CGUs. Therecoverable amounts are based on value-in-use. Future cash flows are discounted using the weightedaverage cost of capital of 10.0%, adjusted for the entity-specific inflation risk of 5.0%. The cashflow projections are based on a five-year financial planning period with EBITDA margin of 22% to40% approved by senior management. Management used forecasted revenue growth of 3.2% to16.5%. Management has determined, based on this analysis, that there are no impairment loss in2017, 2016 and 2015.

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With regard to the assessment of value-in-use of the cash-generating units, management believesthat a reasonably possible change in the assumptions would not cause the carrying values of thecash-generating units to materially exceed their recoverable amounts.

Deposits for Asset AcquisitionsThis account includes deposits paid for the purchase of certain parcels of land located inPoblacion, Lipa City, Batangas which will be the site of STI Academic Center Lipa and depositspaid for the acquisition of the net assets of an STI franchised school located in Santa Maria,Bulacan(see Note 36).Rental DepositsThis account includes security deposits paid to utility companies and for warehouse and officespace rentals to be applied against future lease payments in accordance with the respective leaseagreements.

Intangible AssetsIntangible assets represent the Group’s accounting and school management software. The SchoolManagement Software was partially implemented in April 2016. The Group expects fullimplementation of the software in April 2017.

The rollforward analyses of this account follow:

2017 2016Cost, net of accumulated amortization:

Balance at beginning of year ₱34,131,854 ₱34,044,303Additions 1,104,037 4,644,542Effect of derecognition of a subsidiary (3,421,696) –Amortization (see Note 21 and 23) (9,418,357) (4,556,991)Balance at end of year ₱22,395,838 ₱34,131,854

Cost ₱38,559,362 ₱52,072,194Accumulated amortization 16,163,524 17,940,340Net carrying amount ₱22,395,838 ₱34,131,854

Advances to SuppliersAdvances to suppliers pertain to advance payments made in relation to the acquisition of propertyand equipment. These will be reclassified to the “Property and equipment” account when thegoods are received or the services are rendered.

Condominium DepositIn March 2015, TechZone completed the construction of the condominium units and turned-overthe units for retrofitting. As a result, the Group applied the “Condominium deposits” amounting to₱396.3 million and recognized the total purchase price of the condominium units amounting to₱560.0 million plus directly attributable costs amounting to ₱8.4 million under the “Investmentproperties” account (see Note 10). The resulting difference, which amounted to ₱172.1 million,was recorded as “Gain on exchange of land” in the 2015 consolidated statement of comprehensiveincome.

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15. Interest-bearing Loans and Borrowings


2017 2016Current portion:

Short-term loans ₱545,000,000 ₱–Corporate notes facility 40,800,000 100,800,000

585,800,000 100,800,000Noncurrent 734,400,000 775,200,000

₱1,320,200,000 ₱876,000,000

Short-term LoansSTI ESG availed of loans from Bank of the Philippine Islands, Security Bank and China Bank in2017 aggregating to P₱1,793.0 million, of which ₱1,248 million have been settled as at March 31,2017. Interest rates of STI ESG loans ranged from 3.25% to 3.75%. The proceeds from theseloans were used to fund the acquisition of the properties in EDSA, Pasay City and for workingcapital requirements.

Corporate Notes FacilityOn March 20, 2014, STI ESG entered into a Corporate Notes Facility Agreement (Credit FacilityAgreement) with China Banking Corporation (China Bank) granting STI ESG a credit facilityamounting to ₱3,000.0 million with a term of either 5 or 7 years. The facility is available in twotranches of ₱1,500.0 million each. The net proceeds from the issuance of the notes shall be usedfor capital expenditures and other general corporate purposes.

On May 9, 2014, the first drawdown date, STI ESG elected to have a 7-year term loan withfloating interest based on the 1-year PDST-F plus a margin of two percent (2.00%) per annum,which interest rate shall in no case be lower than the BSP overnight rate plus a margin of three-fourths percent (0.75%) per annum, which is subject to repricing.

In 2015, the Parent Company availed a total of ₱1,200.0 million loans with interest ranging from4.34% to 4.75%. The Parent Company has made payments totaling to ₱100.8 million,₱216.0 million and ₱108.0 million in 2017, 2016 and 2015, respectively.

These loans are unsecured and are due based on the following schedule:

Fiscal Year Amount2018 40,800,0002019 134,400,0002020 240,000,0002021 240,000,0002022 120,000,000

₱775,200,000

An Accession Agreement to the Credit Facility Agreement was executed on December 16, 2014among STI ESG, STI West Negros University (STI WNU), a company under common controlwith STI ESG, and China Bank whereby STI WNU acceded to the Credit Facility entered into bySTI ESG with China Bank in March 2014. In addition, an Amendment and SupplementalAgreement was also executed by the parties on the same date. By virtue of the AccessionAgreement, a sub limit of ₱500.0 million was made available to STI WNU and UNLAD

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Resources Development Corporation. The Amendment and Supplemental Agreement allowedSTI WNU to draw up to ₱300.0 million from the facility.

On December 19, 2014, STI ESG advised China Bank that it will not be availing of tranche 2 ofthe Credit Facility Agreement thus limiting the facility available to STI ESG to ₱1.5 billion.

The Credit Facility Agreement contains, among others, covenants regarding incurring additionaldebt and declaration of dividends, to the extent that such will result in a breach of the requireddebt-to-equity and debt service cover ratios. The Parent Company was required to maintain adebt-to-equity ratio of not more than 1.0:1 and debt service cover ratio of not less than 1.1:1.

Breakdown of the Group’s Credit Facility Agreement follows:

2017 2016Balance at beginning of year ₱876,000,000 ₱1,092,000,000Repayments 100,800,000 216,000,000Balance at end of year 775,200,000 876,000,000Less current portion 40,800,000 100,800,000Noncurrent portion ₱734,400,000 ₱775,200,000

On January 19, 2017, STI ESG and China Bank executed a Second Amendment and SupplementalAgreement to the Corporate Notes Facility Agreement. Significant amendments are as follows:

a) change in interest rate of either (1) the 1-year Benchmark Rate plus a margin of 1.5% perannum which interest rate shall in no case be lower than 3.75% per annum or (2) the 3-monthBenchmark Rate plus a margin of 1.5% per annum which interest rate shall in no case belower than 3.5% per annum.

b) amendments on the required financial ratios, whereby STI ESG shall maintain the followingratios which shall be computed based on the consolidated financial statements:

(1) Debt-to-equity ratio of not more than 1.5x, computed by dividing total debt by totalequity. For the purpose of this computation, total debt shall exclude unearned tuition andother school fees;

(2) Debt service cover Ratio of a minimum of 1.05x.

As at March 31, 2017 and 2016, STI ESG complied with the above covenants (see Note 17).

Interest ExpenseStarting with interest period February 1, 2016, the one year PDST-F on the Credit FacilityAgreement was changed to PDST-R2 as the basis for determining the interest rate.

On January 31, 2017, STI ESG elected to adopt the interest rate based on the 1-year BenchmarkRate plus a margin of 1.5% per annum which interest rate shall in no case be lower than 3.75%payable every January 31 and July 31 of each year.

Interest incurred on the loans amounted to ₱58.8 million, ₱49.0 million and ₱20.1 million in 2017,2016 and 2015, respectively (see Note 20).

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16. Accounts Payable and Other Current Liabilities


2017 2016Accounts payable (see Note 28) ₱215,096,522 ₱205,069,681Accrued expenses:

Rent 30,413,260 36,041,503School-related expenses 24,709,631 29,982,449Contracted services 18,525,456 21,777,509Salaries, wages and benefits 13,630,726 15,180,463Interest 10,877,429 7,145,152Advertising and promotion 3,929,632 2,335,010Utilities 4,469,615 7,114,805Others 9,151,419 7,523,916

Dividends payable 12,365,576 7,115,176Withholding taxes payable 8,044,859 6,550,383Network events fund 7,801,487 5,736,238Student organization fund 3,691,824 2,659,861Current portion of refundable deposits (see Note 28) 1,413,374 2,452,697Subscriptions payable (see Notes 11 and 28) – 17,495,800Others 15,111,439 11,709,198

₱379,232,249 ₱385,889,841

The terms and conditions of the liabilities are as follows:

a. Accounts payable are noninterest-bearing and are normally settled within a 30 to 60-day term.

b. Accrued expenses, withholding taxes payable, network events fund, student organization fund,and other payables are expected to be settled within the next financial year.

c. Refundable deposits pertain to security deposits received from existing lease agreements andare expected to be settled within the next financial year.

d. The subscription payable of ₱17.5 million pertains to the balance of subscription of the ParentCompany to the shares of Maestro Holdings made in December 2015. The BOD of MaestroHoldings in its meeting in June 2016 approved the reduction of the shares opened forsubscription to its stockholders. Correspondingly, the proportionate number of sharessubscribed by the Parent Company was reduced, thus, the reversal of the subscription payable(see Note 11).

For terms and conditions of payable to related parties, refer to Note 28.

17. Bonds Payable

On March 23, 2017, the Company issued the first tranche of its ₱5,000.0 million fixed rate bondsprogram under its 3-year shelf registration with the SEC, which was listed through the PhilippineDealing and Exchange Corp. The bonds, amounting to an aggregate of ₱3,000.0 million, withinterest payable quarterly, were issued with a fixed rate 5.8085% for the 7-year series, due 2024,and 6.3756% for the 10-year series, due 2027, and were rated a high rating of ‘PRS Aa’ byPhilippine Rating Services Corporation (PhilRatings). Proceeds of the issuance will be used to

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finance the campus expansion projects, refinancing of the short-term loans incurred for theacquisition of land, and for other general corporate requirements of the Group.

The bonds include an embedded derivative in the form of an early redemption option that gives theCompany the option, but not the obligation, to redeem in whole (and not in part), the outstandingbonds before the relevant maturity date, based on a certain price depending on the fixed earlyredemption option dates. Management has assessed that the early redemption option is closelyrelated to the bonds and would not require to be separated from the value of the bonds andaccounted for as a derivative under PAS 39, Financial Instruments: Recognition andMeasurement.

A summary of the terms of the Company’s issued bonds is as follows:

YearIssued

InterestPayable Term

InterestRate

PrincipalAmount

Carrying Valueas at March 31,

2017 Features2017 Quarterly 7 years 5.8085% ₱2,180,000,000 ₱2,180,000,000 Callable on the 3rd

month after the 5thanniversary of IssueDate and on the 6thanniversary of IssueDate

2017 Quarterly 10 years 6.3756% 820,000,000 820,000,000 Callable from the7th anniversaryissue and every yearthereafteruntil the 9thanniversaryissue date

₱3,000,000,000 ₱3,000,000,000

CovenantsThe bonds provide certain restrictions and requirements with respect to, among others, change inmajority ownership and management, merger or consolidation with other corporation resulting inloss of control over the overall resulting entity and sale, lease, transfer or otherwise disposal of allor substantially all of its assets. The Credit Facility Agreement also contains, among others,covenants regarding incurring additional debt and declaration of dividends. The Parent Companyis required to maintain a debt-to-equity ratio of not more than 1.5:1 and debt service cover ratio ofnot less than 1.05:1.

The Group’s debt-to-equity and debt service cover ratios as at March 31, 2017 are as follows:

Total liabilities * ₱4,794,395,544Total equity 6,492,014,878Debt-to-equity 0.74:1.00* Excluding unearned tuition and other school fees

EBITDA ₱1,298,327,425Total interest-bearing liabilities 827,543,947Debt service cover 1.57:1.00

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Bond Issuance CostThe Company incurred costs related to the issuance of the bonds amounting to ₱53.1 million.These costs are capitalized and amortized using the effective interest rate method. These arepresented as a contra-liability account in the consolidated statement of financial position as atMarch 31, 2017. The carrying value of the bond issuance costs amounted to ₱53.0 million as atMarch 31, 2017. Amortization of bond issuance costs amounted to ₱0.1 million in 2017 isrecognized as part of the “Interest expense” account in the consolidated statement ofcomprehensive income.

Interest ExpenseInterest expense associated with the bonds payable recognized in the consolidated statement ofcomprehensive income amounted to ₱4.5 million in 2017 (see Note 20).

18. Other Noncurrent Liabilities

March 312017 2016

Payable to STI Diamond - net of current portion ₱57,117,312 ₱–Advance rent 38,033,539 18,132,912Refundable deposit - net of current portion 17,821,827 11,036,239Deferred lease liability 3,233,954 2,195,644

₱116,206,632 ₱31,364,795

On August 16, 2016, STI Diamond entered into a Deed of Assignment with STI Novaliches whereSTI Diamond assigned, transferred and conveyed in a manner absolute and irrevocable, and freeand clear of all liens and encumbrances, to STI Novaliches all its rights, title and interest in itsassets and liabilities for a price of ₱75.0 million, payable quarterly over five years. Consequently,the management contract between the Parent Company and STI Diamond was terminated. Inaddition, any rights to the residual interest in STI Diamond was transferred to an entity outside ofthe Group. As a result, STI Diamond was derecognized as a subsidiary of the Parent Company.The impact of ₱60.8 million, shown as “Effect of derecognition of a subsidiary” in theconsolidated statement of comprehensive income the year ended March 31, 2017, represents thepresent value of the purchase price. The total carrying value of the unpaid purchase priceamounted to ₱60.8 million, of which, ₱3.7 million is recorded as part of “Others” under the“Accounts payable and other current liabilities” account as at March 31, 2017 (see Note 16).

Advance rent pertains to advance rentals which have not been earned by the Group as thesecollections apply to periods more than one year after the reporting date.

Refundable deposits are held by the Group throughout the term of the lease and are refunded infull to the lessee at the end of the lease term if the lessee has performed fully and observed all ofthe conditions and provisions in the lease. Refundable deposits are presented in the statements offinancial position at amortized cost. The difference between the fair value at initial recognitionand the notional amount of the refundable deposit is charged to “Deferred lease liability” andamortized on a straight-line basis over the respective lease term.

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19. Equity

Capital StockThe details of the number of common shares follow:

2017 2016Authorized - ₱1 par value 5,000,000,000 5,000,000,000

Issued and outstanding - ₱3,081,871,859 ₱3,081,871,859

Retained Earnings

a. On September 9, 2016, the BOD approved the cash dividends declaration amounting to₱246.5 million, or ₱0.08 per share, in favor of the stockholders of record as at September 9,2016. Such dividends were paid on September 15, 2016. On September 20, 2016, the BODalso approved the cash dividends declaration amounting to ₱832.1 million, or ₱0.27 per share,in favor of stockholders of record as at September 20, 2016. The Company paid₱431.5 million and ₱400.6 million dividends to its stockholders on September 23, 2016 andNovember 3, 2016, respectively.

b. On September 4, 2015, the Parent Company’s BOD approved the cash dividends declarationamounting to ₱250.0 million, or ₱0.08 per share, in favor of the stockholders of record as atAugust 31, 2015. Such dividends were paid on September 16, 2015.

c. On September 4, 2014, the Parent Company’s BOD approved the cash dividends declarationamounting to ₱250.0 million, or ₱0.08 per share, in favor of the stockholders of record as atAugust 31, 2014. Such dividends were paid on September 22, 2014.

d. Consolidated retained earnings include undeclared retained earnings of subsidiaries andassociates amounting to ₱1,222.4 million, ₱1,397.8 million and ₱1,250.8 million as at March31, 2017, 2016 and 2015, respectively. The Parent Company’s retained earnings available fordividend declaration, computed based on the guidelines provided in the SEC MemorandumCircular No. 11, amounted to ₱1,840.3 million, ₱2,126.8 million and ₱1,886.3 million as atMarch 31, 2017, 2016 and 2015, respectively.

Other Equity Reserve

iACADEMY. On September 27, 2016, the Parent Company entered into a deed of sale withSTI Holdings wherein the Parent Company sells, assigns, transfer and delivers in full its absolutetitle over the shares of iACADEMY. The difference between the consideration of ₱113.5 millionand the carrying value of net assets of iACADEMY of ₱124.3 million, or equivalent to₱10.8 million, is recognized under the “Other equity reserve” account in the consolidatedstatement of financial position as at March 31, 2017. The carrying value of the net assets ofiACADEMY includes the ₱100.0 million capital infusion made by STI Holdings prior to the saleof iACADEMY.

STI Taft. On December 1, 2015, the BOD of STI Taft approved the application for an increase inauthorized capital stock from 5,000 shares with ₱100 par value per share to 750,000 shares with₱100 par value per share. On the same date, the BOD of STI Taft approved the conversion of STITaft’s advances from STI ESG amounting to ₱49.0 million to deposit for future stock

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subscriptions. On April 4, 2016, the SEC approved STI Taft’s increase in authorized capital stockto ₱75.0 million. Consequently, the deposit for future stock subscriptions was reclassified as partof the investment cost. As at March 31, 2017, STI Taft became a 99.9%-owned subsidiary of STIESG. This transaction resulted in the dilution of the non-controlling interest and an equityadjustment of ₱11.3 million for the year ended March 30, 2017. As at March 31, 2017, STI Taftbecame a 99.9%-owned subsidiary of STI ESG.

STI Dagupan. On February 27, 2015, the BOD of STI Dagupan approved the application for anincrease in authorized capital stock from ₱0.5 million to ₱35.0 million and the opening forsubscription of 72,000 common shares with an aggregate par value of ₱7.2 million. Subsequently,the Parent Company subscribed to 32,000 shares or an aggregate par value of ₱3.2 million. TheBOD of STI Dagupan also approved the equity conversion of STI Dagupan’s advances from theParent Company amounting to ₱19.8 million. This transaction resulted in the dilution of non-controlling interest and an equity adjustment of ₱4.8 million in 2016. The Parent Company’sownership over STI Dagupan increased from 77% to 99.9%.

20. Interest Income and Interest Expense

Sources of interest income are as follows:

2017 2016 2015Cash and cash equivalents

(see Note 5) ₱1,403,947 ₱2,753,538 ₱1,235,325Past due accounts receivable

(see Note 6) 1,472,985 1,406,303 2,932,047Others 49,334 582,695 797,748

₱2,926,266 ₱4,742,536 ₱4,965,120

Sources of interest expense are as follows:

2017 2016 2015Interest-bearing loans and

borrowings (see Note 15) ₱58,785,842 ₱48,984,156 ₱20,052,952Obligations under finance lease

(see Note 26) 2,036,422 1,161,535 1,541,470Bonds payable (see Note 17) 4,472,631 – –Others 464,149 300,925 –

₱65,759,044 ₱50,446,616 ₱21,594,422

21. Cost of Educational Services


2017 2016 2015Faculty salaries and benefits

(see Note 24) ₱271,080,196 ₱250,747,384 ₱223,483,147Depreciation and amortization

(see Note 9) 168,327,086 162,440,199 134,201,333Student activities and programs 121,682,251 117,964,371 96,710,642

(Forward)

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2017 2016 2015Rental (see Note 26) P=93,126,841 P=91,951,494 P=91,069,758School materials and supplies 14,594,294 13,710,777 12,882,747Software Maintenance 9,432,849 7,171,434 2,357,907Courseware development costs 1,520,966 4,038,111 4,774,173Others 5,309,524 6,765,042 12,394,302

₱685,074,007 ₱654,788,812 ₱577,874,009

22. Cost of Educational Materials and Supplies Sold


2017 2016 2015Educational materials and supplies ₱102,029,585 ₱37,535,662 ₱27,116,580Promotional materials 12,049,699 12,565,817 11,883,014Others 1,343,453 1,433,221 1,729,223

₱115,422,737 ₱51,534,700 ₱40,728,817

23. General and Administrative Expenses


2017 2016 2015Salaries, wages and benefits

(see Notes 24 and 25) ₱255,378,490 ₱261,488,568 ₱249,161,013Depreciation and amortization

(see Notes 9, 10 and 14) 151,181,231 157,304,459 133,236,220Light and water 98,246,671 95,573,938 104,804,310Outside services 75,898,762 73,405,009 67,446,331Provision for impairment loss on:

Receivables (see Note 6) 66,104,129 70,576,140 71,311,793Investments in and advances to

associates and joint ventures (see Note 11) 1,643,844 519,414 –

Professional fees 60,091,566 64,690,552 56,259,843Rental (see Note 26) 49,367,253 48,163,542 48,329,651Taxes and licenses 29,782,373 22,327,299 37,276,959Transportation 27,405,277 25,988,621 24,621,224Advertising and promotions 9,696,496 57,429,955 29,967,782Repairs and maintenance 19,011,030 16,194,971 13,075,832Meetings and conferences 17,540,659 16,525,716 15,890,272Entertainment, amusement

and recreation 15,823,078 13,145,577 12,135,802Office supplies 12,076,308 12,731,947 10,893,655Insurance 9,714,872 10,013,303 6,734,301Communication 9,284,957 10,363,335 10,309,518Software maintenance 2,203,386 1,666,137 679,200Association dues 235,457 311,242 3,169,757Excess of cost over net realizable

value of inventories (see Note 7) – – 296,127Others 17,946,665 18,956,880 14,225,200

₱928,632,504 ₱977,376,605 ₱909,824,790

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24. Personnel Costs


2017 2016 2015Salaries and wages ₱463,303,974 ₱448,959,749 ₱411,949,322Pension expense (see Note 23) 12,970,192 12,579,338 12,254,359Other employee benefits 50,184,520 50,696,865 48,440,479

₱526,458,686 ₱512,235,952 ₱472,644,160

25. Pension Plans

Defined Benefit PlansThe Group (except De Los Santos-STI College and STI QA) has separate, funded,noncontributory, defined benefit pension plans covering substantially all of its faculty and regularemployees. The benefits are based on the faculties’ and employees’ salaries and length of service.

Under the existing regulatory framework, RA No. 7641 (Retirement Pay Law) requires a provisionfor retirement pay to qualified private sector employees in the absence of any retirement plan inthe entity, provided however that the employee’s retirement benefits under any collectivebargaining and other agreements shall not be less than those provided under the law. The law doesnot require minimum funding of the plan.

Retirement benefits are payable in the event of termination of employment due to: (i) early,normal, or late retirement; (ii) physical disability; (iii) voluntary resignation; or (iv) involuntaryseparation from service. For plan members retiring under normal, early or late terms, retirementbenefit is equal to a percentage of final monthly salary for every year of credited service.

In case of involuntary separation from service, benefit is determined in accordance with theTermination Pay provision under the Philippine Labor Code or similar legislation on involuntarytermination.

The funds are administered by a trustee bank under the supervision of the Board of Trustees of theplan. The Board of Trustees is responsible for investment of the assets. It defines the investmentstrategy as often as necessary, at least annually, especially in the case of significant marketdevelopments or changes to the structure of the plan participants. When defining the investmentstrategy, it takes account of the plans’ objectives, benefit obligations and risk capacity. Theinvestment strategy is defined in the form of a long-term target structure (Investment policy). TheBoard of Trustees implements the Investment policy in accordance with the investment strategy,as well as various principles and objectives.

The following tables summarize the components of the Group’s net pension expense recognized inthe consolidated statements of comprehensive income and the pension liability recognized in theconsolidated statements of financial position:

2017 2016 2015Pension liabilities ₱6,087,953 ₱38,143,366 ₱27,538,255Pension assets (2,763,398) – –

₱3,324,555 ₱38,143,366 ₱27,538,255

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2017 2016 2015Pension expense (recognized under

the “Salaries, wages andbenefits” account):Current service cost ₱11,079,632 ₱11,208,413 ₱10,385,890Net interest cost 1,652,579 1,310,745 1,106,938

₱12,732,211 ₱12,519,158 ₱11,492,828Pension liabilities (assets)

(recognized in the consolidatedstatements of financial position):Present value of defined benefit obligations ₱133,237,145 ₱122,032,569 ₱112,415,012Fair value of plan assets (129,912,590) (83,889,203) (84,876,757)

₱3,324,555 ₱38,143,366 ₱27,538,255

Changes in the present value ofdefined benefit obligations:Balance at beginning of year ₱122,032,569 ₱112,415,012 ₱98,750,312Current service cost 11,079,632 11,208,413 10,385,890Interest cost 6,258,996 5,482,809 4,535,095Benefits paid (2,156,395) (1,877,286) (1,467,268)Actuarial loss (gain) on obligations 2,094,248 (5,196,379) 210,983Effect of derecognition of a subsidiary (6,071,905) – –Balance at end of year ₱133,237,145 ₱122,032,569 ₱112,415,012

Changes in the fair value of planassets:Balance at beginning of year ₱83,889,203 ₱84,876,757 ₱74,875,478Contributions 10,396,012 8,956,993 8,392,091Interest income 4,606,417 4,172,064 3,428,157Benefits paid (2,156,395) (1,877,286) (1,467,268)Actuarial gain (loss) on plan assets 33,177,353 (12,239,325) (351,701)Balance at end of year ₱129,912,590 ₱83,889,203 ₱84,876,757

Actual return (loss) on plan assets ₱38,730,703 (₱8,067,261) ₱3,076,456

The maximum economic benefit available is a combination of expected refunds from the plan andreductions in future contributions.

The major categories of the Group’s total plan assets as a percentage of the fair value of the totalplan assets are as follows:

2017 2016 2015Cash and cash equivalents 9% 36% 35%Short-term fixed income 29% 2% 1%Investments in:

Equity securities 59% 58% 60%Debt securities 3% 4% 4%

100% 100% 100%

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The plan assets of the Group are maintained by Union Bank of the Philippines and UnitedCoconut Planters Bank.

Details of the Group’s net assets available for plan benefits and their related market values are asfollows:

2017 2016 2015Cash ₱12,054,721 ₱29,787,079 ₱29,533,380Short-term fixed income 37,375,570 1,660,885 1,209,000Investments in:

Equity securities 76,885,722 48,627,116 50,388,198Government securities 3,596,577 3,779,823 3,722,112

Others – 34,300 24,067₱129,912,590 ₱83,889,203 ₱84,876,757

Short-term Fixed Income. Short-term fixed income investment includes time deposits and specialsavings deposits.

Investments in Equity Securities. Investments in equity securities pertain to investment in shares ofSTI Holdings, the ultimate parent company, which has a fair value of ₱0.50, ₱0.57 and ₱0.71 pershare as at March 31, 2017, 2016 and 2015, respectively.

Total gain from investments in equity securities of related parties amounted to ₱41.9 million,₱4.9 million and ₱14.7 million in 2017, 2016 and 2015, respectively.

The plan may expose the Group to a concentration of equity market risk since the Group’s planassets are primarily composed of investments in listed equity securities.

Investments in Government Securities. Investments in government securities include treasury billsand fixed-term treasury notes with maturities ranging from one to thirteen years and bear interestrates ranging from 5.9% to 9.0%. These securities are fully guaranteed by the Government of theRepublic of the Philippines.

The expected contribution of the Group in 2018 is ₱9.6 million.

Management performs an Asset-Liability Matching Study annually. The overall investmentpolicy and strategy of the Group’s defined benefit plans is guided by the objective of achieving aninvestment return which, together with contributions, ensures that there will be sufficient assets topay pension benefits as they fall due while also mitigating the various risk of the plans. TheGroup’s current strategic investment strategy consists of 58% of equity instruments, 2% of short-term fixed income, 4% of debt instruments and 36% of cash and cash equivalents.

The average duration of the defined benefit obligation at the end of the period is 18 years.

Shown below is the maturity analysis of the undiscounted benefit payments:

AmountLess than one year ₱19,368,664More than one year to five years 16,070,625More than five years to 10 years 74,591,335More than 10 years to 15 years 111,982,810More than 15 years to 20 years 142,555,468More than 20 years 386,406,168

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The principal assumptions used in determining pension liabilities are shown below:

The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation (DBO) as at the end of the reportingperiod, assuming all other assumptions were held constant:

Effect on Present Value of DBO2017 2016 2015

Discount ratesIncrease by 1% (₱12,536,721) (₱13,421,569) (₱11,085,661)Decrease by 1% 15,079,321 16,258,710 13,384,956

Future salary increasesIncrease by 1% 14,862,020 16,032,261 13,173,394Decrease by 1% (12,711,470) (13,581,775) (11,216,745)

Employee turnoverIncrease by 10% 2,083,508 (2,575,973) (2,056,676)Decrease by 10% (2,083,508) 2,575,973 2,056,676

Defined Contribution PlansDe Los Santos-STI College and STI QA have funded, noncontributory defined contribution plan(De Los Santos Plan) covering all regular and permanent employees and is a participatingemployer in CEAP Retirement Plan. The De Los Santos Plan has a defined contribution formatwherein the obligation is limited to specified contributions to the De Los Santos Plan and theemployee’s contribution is optional.

De Los Santos-STI College and STI QA’s contributions consist of future service cost and pastservice cost. Future service cost is equal to 4.00% of employee’s monthly salary from the date anemployee becomes a member in CEAP. Past service cost is equal to 5.00% of the employees’average monthly salary for a 12 month period, immediately preceding the date of De Los Santos-STI College and STI QA’s participation in CEAP, multiplied by the number of years of pastservice amortized over 10 years. Future service refers to the periods of covered employment on orafter the date of De Los Santos-STI College and STI QA’s participation in CEAP. Past servicerefers to the continuous service of an employee from the date the employee met the requirementsfor membership in the retirement plan to the date of acceptance of De Los Santos-STI College andSTI QA as a Participating Employer in CEAP Retirement Plan. In addition, De Los Santos-STICollege and STI QA give the employee an option to make a personal contribution to the fund at anamount not to exceed 4.00% of his monthly salary. De Los Santos-STI College and STI QA thenprovide an additional contribution of 1.00% of the employee’s contribution based on the latter’syears of tenure. Although the De Los Santos Plan has a defined contribution format, the Groupregularly monitors compliance with RA No. 7641. As at March 31, 2017, 2016 and 2015, theGroup is in compliance with the requirements of RA No. 7641.

As at March 31, 2017, 2016 and 2015, De Los Santos-STI College and STI QA have excesscontributions to CEAP amounting to ₱3.6 million, ₱3.2 million and ₱3.0 million, respectively.These excess contributions are classified as prepaid expense and will be offset against De LosSantos-STI College and STI QA’s future required contributions to CEAP (see Note 8).

Philippine Interpretations Committee Q&A No. 2013-03 requires De Los Santos-STI College’sdefined contribution plan to be accounted for as defined benefit plan due to the minimumretirement benefits mandated under RA No. 7641. Actuarial valuation of De Los Santos-STICollege’s pension is performed every year-end. Based on the latest actuarial valuation, theminimum retirement benefit provided under RA No. 7641 exceeded the accumulated contributionand earnings under the Plan, however, the amount is not significant.

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Pension expense recognized by De Los Santos-STI College and STI QA amounted to₱0.2 million, ₱0.1 million and ₱0.8 million in 2017, 2016 and 2015, respectively.

Total pension expense recognized in profit or loss follows:

2017 2016 2015Defined benefit plans ₱12,732,211 ₱12,519,158 ₱11,492,828Defined contribution plans 237,981 60,180 761,531

₱12,970,192 ₱12,579,338 ₱12,254,359

26. Leases

a. Finance Lease

The Group acquired various transportation equipment under various finance leasearrangements. These are included as part of transportation equipment under the “Property andequipment” account in the consolidated statements of financial position.

Future annual minimum lease payments under the lease agreements, together with the presentvalue of the minimum lease payments follow:

2017 2016Within one year ₱5,508,520 ₱6,837,640After one year but not more than five years 6,958,783 7,288,804Total minimum lease payments 12,467,303 14,126,444Less amount representing interest 1,080,635 1,083,772Present value of lease payments 11,386,668 13,042,672Less current portion of obligations under

finance lease 4,912,919 5,729,488Noncurrent portion of obligations under

finance lease ₱6,473,749 ₱7,313,184

Interest incurred from finance lease amounted to ₱2.0 million, ₱1.2 million and ₱1.5 millionin 2017, 2016 and 2015, respectively (see Note 20).

b. Operating Lease

As LessorThe Group entered into several lease agreements, as lessors, on their buildings andcondominium units under operating lease agreements with varying terms and periods. Allleases are subject to annual repricing based on a pre-agreed rate.

In March 2015, TechZone completed the construction of the condominium units and turned-over the units for retrofitting. STI ESG entered into several lease agreements, as lessor, on thecondominium units under operating lease agreements with varying terms and periods.

The Group also earns rental income from concessionaires and for the occasional use of someof the Group’s properties primarily used for school operations such as gymnasiums.

Total rental income amounted to ₱101.3 million, ₱62.2 million and ₱30.2 million in 2017,2016 and 2015, respectively (see Notes 10 and 28).

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Future minimum rental receivable for the remaining lease terms follow:

2017 2016Within one year ₱95,191,676 ₱95,468,050After one year but not more than five years 281,130,922 421,012,632More than five years – 168,112,875

₱376,322,598 ₱684,593,557

As LesseeThe Group leases land and building spaces where the corporate office and schools are located,under operating lease agreements with varying terms and periods. The lease rates are subjectto annual repricing based on a pre-agreed rate.

On May 13, 2016, the Parent Company and BDO Unibank, Inc. (BDO Unibank), the trusteebank of PhilPlans, entered into an agreement for the lease of a property in Calamba, Laguna.The term of the lease is 25 years starting July 2016 with a monthly rental of ₱0.4 million. Theannual rental shall be subject to a 3% escalation every three years starting on the fourth year ofthe lease term. Under the terms of the lease agreement, the Parent Company is required tomake an upfront payment of ₱7.4 million as well as one (1) year advance rent.

Total rental expense charged to operations amounted to ₱142.5 million, ₱140.1 million and₱139.4 million in 2017, 2016 and 2015, respectively (see Notes 21 and 23).

Certain subsidiaries also paid their lessors rental deposits equivalent to several months ofrental payments as security for its observance and faithful compliance with the terms andconditions of the agreement (see Note 14).

The lease arrangement related to the land leased by De Los Santos-STI College for its schooloperations was terminated effective March 31, 2015. Thus, accrued rent related to the leaseamounting to ₱1.4 million was reversed and De Los Santos-STI College no longer expects anyfuture minimum lease payments on the lease agreement.

Future minimum rental payables under the lease agreements follow:

2017 2016Within one year ₱106,923,531 ₱78,388,743After one year but not more than five years 160,473,611 261,001,421More than five years 240,226,634 343,158,277

₱507,623,776 ₱682,548,441

27. Income Tax

All domestic subsidiaries qualifying as private educational institutions are subject to tax underRA No. 8424, “An Act Amending the National Internal Revenue Code, as amended, and ForOther Purposes” which was passed into law effective January 1, 1998. Title II Chapter IV - Taxon Corporation - Sec 27(B) of the said Act defines and provides that: a “Proprietary EducationalInstitution” is any private school maintained and administered by private individuals or groupswith an issued permit to operate from DepEd, or CHED, or TESDA, as the case may be, inaccordance with the existing laws and regulations and shall pay a tax of ten percent (10.00%) onits taxable income.

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The components of recognized net deferred tax assets are as follows:

2017 2016Deferred tax assets:

Allowance for doubtful accounts ₱7,867,546 ₱8,422,454Unearned tuition and other school fees 2,958,356 5,322,590Pension liabilities 608,795 3,814,337Excess of:

Rental under operating lease computed on a straight-line basis 1,246,057 2,593,014

Cost over net realizable value of inventories 1,065,590 1,065,590Advance rent 3,803,354 1,813,291

17,549,697 23,031,276

Deferred tax liabilities:Excess of fair values of net assets acquired over

acquisition cost from a businesscombination (209,144) (209,144)

Pension assets (276,340) –Bond issue cost (1,496,545) –

(1,982,029) (209,144)₱15,567,668 ₱22,822,132

Certain deferred tax assets of the Group were not recognized as at March 31, 2017 and 2016 as itis not probable that future taxable profits will be sufficient against which these can be utilized.

The following are the deductible temporary differences and unused NOLCO for which no deferredtax assets were recognized:

2017 2016NOLCO ₱53,770,417 ₱67,808,506Allowance for doubtful accounts 858,771 858,771

₱54,629,188 ₱68,667,277

As at March 31, 2017, 2016 and 2015, the Group also did not recognize any deferred tax assets onthe provision for impairment losses on investment in and advances to an associate and goodwillaggregating to ₱20.4 million, ₱18.8 million and ₱18.2 million, respectively, because managementdoes not expect to generate enough capital gains against which these capital losses can be offset.

The details of the Group’s NOLCO are as follows:

Year Incurred Expiry Dates AmountDecember 31, 2013 December 31, 2016 ₱1,382,082March 31, 2014 March 31, 2017 20,542,811March 31, 2015 March 31, 2018 16,638,328March 31, 2016 March 31, 2019 29,245,285March 31, 2017 March 31, 2020 8,973,765

76,782,271Less:

Expired in 2017 21,924,893Applied in 2017 1,086,961

₱53,770,417

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The reconciliation of the provision for income tax on income before income tax computed at theeffect of the applicable statutory income tax rate to the provision for income tax as shown in theconsolidated statements of comprehensive income is summarized as follows:

2017 2016 2015Provision for income tax at statutory

income tax rate ₱69,633,327 ₱74,015,200 ₱76,657,668Income tax effects of:

Equity in net earnings(loss) of associates and joint ventures 15,882,360 (5,402,633) (10,490,959)Royalty fees subjected to final tax (1,914,893) (1,593,548) (1,547,412)Dividend income (325,150) (283,067) (147,077)Interest income already subjected to final tax (140,395) (275,354) (123,533)Effect of derecognition of a subsidiary 6,082,946 – –

Others 4,275,487 427,039 (1,411,908)₱93,493,682 ₱66,887,637 ₱62,936,779

Others pertain to the income tax effects of change in unrecognized deferred tax assets, expiredNOLCO and other items.

28. Related Party Transactions

Parties are considered to be related if one party has the ability to control the other party or exercisesignificant influence over the other party in making financial and operating decisions. Thisincludes: (a) enterprises or individuals owning, directly or indirectly through one or moreintermediaries, control or are controlled by, or under common control with the Parent Company;(b) associates; and (c) enterprises or individuals owning, directly or indirectly, an interest in thevoting power of the company that gives them significant influence over the company, keymanagement personnel, including directors and officers of the Group and close members of thefamily of any such enterprise or individual.

The following are the Group’s transactions with its related parties:


OutstandingReceivable (Payable)

Related Party 2017 2016 2017 2016 Terms ConditionsAssociatesSTI AccentAdvances for various expenses and other charges ₱1,643,844 ₱519,414 ₱37,277,147 ₱35,633,303 30 days upon receipt


Unsecured;impaired

Maestro HoldingsSubscription of common stock – 69,983,200 – (17,495,800) Due and demandable;

noninterest-bearingUnsecured; no impairment

GROWRental income and other charges – – 7,139,094 7,239,094 30 days upon receipt

of billingsUnsecured;

no impairmentAdvances for various expenses 30,708 54,539 143,571 143,571 30 days upon receipt


Unsecured;no impairment

STI HoldingsAdvisory fees 16,128,000 16,128,000 – – 30 days upon receipt



Advances for various expenditures 324,615 1,272,004 – (41,166) 30 days upon receiptof billings; noninterest-bearing


(Forward)

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OutstandingReceivable (Payable)

Related Party 2017 2016 2017 2016 Terms ConditionsSTI AlabangEducational services and sale of educational

materials and suppliesP=17,539,509 P=14,272,901 P=1,124,509 P=– 30 days upon receipt



STI MarikinaEducational services and sale of educational

materials and supplies

15,404,214 11,140,869 31,789 – 30 days upon receipt ofbillings; noninterest-bearing

Unsecured;No impairment

Joint VenturePHEIAdvances for various expenses – 575,000 – – 30 days upon receipt



Affiliates*PhilCareRental income and other charges 18,210,903 17,284,807 3,562,049 3,135,109 30 days upon receipt



HMO coverage 3,306,371 3,514,745 – – 30 days upon receiptof billings; noninterest-bearing


Phil First Insurance Co., Inc.Utilities and other charges 214,505 221,243 – 491,823 30 days upon receipt



Insurance 4,540,984 3,594,606 – (8,707) 30 days upon receiptof billings; noninterest-bearing


Philippines First Condominium CorporationAssociation dues, utilities and other charges 12,296,975 1,317,782 – (376,179) 30 days upon receipt



PhilLifeRental income and other charges 5,851,794 14,367,302 – 1,127,989 30 days upon receipt



STI WNUEducational services and sale of educational

materials and supplies10,066,781 1,659,653 – – 30 days upon receipt



Advances for various expenses 2,653,983 21,236,416 – 109,196 30 days upon receiptof billings; noninterest-bearing


iACADEMYAdvances for various expenses 978,577 – – – 30 days upon receipt



Officers and employeesAdvances for various expenses 16,954,041 12,753,872 19,497,646 20,785,180 Liquidated within one month;

noninterest-bearingUnsecured;

no impairmentOthersRental income and other charges 3,089,245.00 641,286 1,972,716 1,376,788 30 days upon receipt



₱70,748,521 ₱52,120,201*Affiliates are entities under common control of a majority Shareholder

Related party receivables and payables are generally settled in cash.

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Outstanding receivables, before any allowance for impairment, and payables arising from thesetransactions are summarized below:

2017 2016Educational services ₱1,156,299 ₱–Current portion of advances to associates, joint

ventures and other related parties (see Note 6) 143,571 252,767Advances to officers and employees (see Note 6) 19,497,646 20,785,180Rent, utilities and other related receivables

(see Note 6) 12,673,858 13,370,803Advances to associates and joint ventures

(see Note 11) 37,277,147 35,633,303Accounts payable (see Note 16) – (426,052)Subscriptions payable (see Note 16) – (17,495,800)

₱70,748,521 ₱52,120,201

Condominium DepositsAs discussed in Note 14, the Parent Company’s BOD approved the transfer of the land toTechZone, in exchange for condominium units to be developed by TechZone. Subsequent to thetransfer, the land was reclassified as “Condominium deposits” under the “Goodwill, intangible andother noncurrent assets” account in the consolidated statements of financial position. In March2015, the Group reclassified the condominium deposits amounting to ₱396.3 million to the“Investment Properties” account.

Compensation and Benefits of Key Management PersonnelCompensation and benefits of key management personnel of the Group are as follows:

2017 2016 2015Short-term employee benefits ₱41,104,402 ₱36,622,357 ₱30,946,190Post-employment benefits 2,053,780 1,724,890 1,473,432

₱43,158,182 ₱38,347,247 ₱32,419,622

29. Basic and Diluted EPS on Net Income Attributable to Equity Holders of the ParentCompany

The table below shows the summary of net income and weighted average number of commonshares outstanding used in the calculation of EPS:

2017 2016 2015Net income attributable to equity holders of the Parent

Company ₱601,534,658 ₱671,047,817 ₱ 713,651,120Weighted average number of common shares outstanding: Common shares outstanding at beginning and end of

year 3,081,871,859 3,081,871,859 3,081,871,859 Effect of subscriptions and treasury shares during the

year – – –₱3,081,871,859 ₱3,081,871,859 ₱3,081,871,859

Basic and diluted EPS on net income attributable to equityholders of the Parent Company ₱0.20 ₱0.22 ₱0.23

The basic and diluted earnings per share are the same for the years ended March 31, 2017, 2016and 2015 as there are no dilutive potential common shares.

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30. STI Gift of Knowledge Certificates (GOKs)

On December 9, 2002, the BOD of the Parent Company approved the offer for sale and issue of upto ₱2.0 billion worth of GOKs.

The STI GOKs are noninterest-bearing certificates that entitle the holders or any designatedscholars to redeem academic units in any member of the STI Group or equivalent academic unitsin any STI school on certain designated redemption dates or, to require STI to pay in cash the parvalue of the outstanding STI GOKs on designated graduation dates. The redemption dates rangefrom the SY 2004–2005 to six years from date of issue of the STI GOKs. The graduation datesrange from between four to ten years from issue date. A total offer size of 2,409,600 academicunits for the entire STI Group or its equivalent units in any STI school will be offered at serialredemption dates at their corresponding par values.

In 2003, the SEC issued an Order of Registration and a Certificate of Permit to Sell Securities forthe said STI GOKs.

The Parent Company is planning to amend the terms of the GOKs to conform with future businessstrategies.

As at July 6, 2017, there has been no sale nor issuance of GOKs. Hence, pursuant to Section 17.2(a) of the Securities Regulation Code (SRC), STI ESG is not required to file the reports requiredunder Section 17 of the SRC.

31. Contingencies and Commitments

Contingencies

a. Tax Assessment Case. The Parent Company filed a petition for review with the Court of TaxAppeals (CTA) on October 12, 2009. This is to contest the Final Decision on DisputedAssessment issued by the BIR assessing the Parent Company for deficiencies on income tax,and expanded withholding tax for the year ended March 31, 2003 amounting to₱124.3 million. On February 20, 2012, the Parent Company rested its case and its evidencehas been admitted into the records.

On June 27, 2012, the BIR rested its case and has formally offered its evidence. OnApril 17, 2013, the CTA issued a Decision which granted the Parent Company’s petition forreview and ordered the cancellation of the BIR’s assessment since its right to issue anassessment for the alleged deficiency taxes had already prescribed. On May 16, 2013, theParent Company received a copy of the Commissioner of Internal Revenue’s (CIR) Motion forReconsideration dated May 8, 2013. The Parent Company filed its Comment to CIR’s Motionfor Reconsideration on June 13, 2013. The CTA issued a resolution dated July 17, 2013denying the CIR’s Motion for Reconsideration. On August 22, 2013, the CIR filed its Petitionfor Review dated August 16, 2013, with the CTA En Banc. On October 29, 2013, the ParentCompany filed its Comment to the CIR’s Petition for Review. The CTA En Banc deemed thecase submitted for decision on May 19, 2014, considering the CIR’s failure to file itsmemorandum. On March 24, 2015, the CTA En Banc affirmed the decision dated April 17,2013 and the resolution dated July 17, 2013 and granted the Parent Company’s Petition forReview and ordered the cancellation of the BIR assessment for the fiscal year endingMarch 31, 2003. On April 21, 2015, the CIR filed a Motion for Reconsideration with the CTAEn Banc. On July 3, 2015, the Parent Company filed its Comment on the Motion for

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Reconsideration. On September 2, 2015, the CTA En Banc denied the CIR’s Motion forReconsideration. On October 30, 2015, the CIR filed a Petition for Review with the SupremeCourt. On January 26, 2016, the Parent Company received a notice from the Supreme Courtrequiring it to file its Comment on the Petition for Review filed by the CIR. On February 5,2016, the Parent Company filed a Motion for Extension of Time to File Comment on thePetition for Review requesting an additional period of twenty (20) days from February 5,2016, or until February 25, 2016, within which to file the Comment. On February 25, 2016,the Parent Company filed another Motion for Extension of Time to File Comment on thePetition for Review requesting an additional period of fifteen (15) days from February 25,2016, or until March 11, 2016, within which to file the Comment. On March 11, 2016, theParent Company, through its counsel, filed its Comment on the Petition. On October 27,2016, STI ESG received a notice from the Supreme Court in which the Court, inter alia,required the CIR to reply to STI ESG's Comment (to the Petition for Review) within ten (10)days from receipt of notice. On November 25, 2016, the CIR filed its reply to the ParentCompany’s comment. As of the date of the report, the case is pending resolution by theSupreme Court.

b. Labor Case. A former employee filed a Petition with the Supreme Court after the Court ofAppeals denied the former employee’s claims and rendered prior decisions in favor of theParent Company. On August 13, 2014, the Parent Company received the Supreme Court’sdecision dated July 9, 2014 annulling the decision of the Court of Appeals and ordered that theParent Company reinstate the former employee to her former position and pay the exactsalary, benefits, privileges and emoluments which the current holder of the position isreceiving and should be paid backwages from the date of the former employee’s dismissaluntil fully paid, with legal interest. On August 28, 2014, the Parent Company filed its Motionfor Reconsideration and on November 17, 2014, the Supreme Court issued a resolution whichdenied with finality the Parent Company’s Motion for Reconsideration. On January 5, 2015,the Parent Company filed an Omnibus Motion and requested to move the case for review bythe Supreme Court En Banc. On May 22, 2015, the Parent Company received a notice fromthe Supreme Court which denied the Parent Company’s Omnibus Motion. As a result of thedecision, the Parent Company recognized provision amounting to P=3.0 million representingthe estimated compensation to be made to the former employee. On October 20, 2015, a BankOrder to release was issued to one of Parent Company’s depository banks for the release of thegarnished amount of P=2.2 million. The bank released the garnished amount to the NationalLabor Relations Commission (NLRC).

The garnished amount was put on hold for fifteen (15) days because of the filing of the ParentCompany’s Petition questioning, among others, the Writ of Execution issued by the laborarbiter, which was docketed as LER-CN-10291-15.

While the Petition was pending for resolution by the NLRC and without any injunction orderbeing issued by the said Commission, the garnished amount of ₱2.2 million was released tothe former employee.

On March 1, 2016, the former employee filed an Entry of Appearance withManifestation/Motion for Computation dated February 24, 2016. In the said motion, theformer employee sought for computation of her backwages, inclusive of monetary equivalentof leaves and 13th month pay from July 22, 2004 until the same is actually paid. In addition,the former employee waived the reinstatement aspect of the March 31, 2016 decision of laborarbiter, and sought the payment of separation pay.

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As mentioned in an earlier paragraph, on October 19, 2015, the Parent Company filed aPetition with the NLRC, docketed as LER-CN-10291-15, to (1) annul the Writ of Executionissued by labor arbiter for the amount of ₱2.2 million, and (2) order the payment of separationpay in favor of the former employee instead of reinstatement as Chief Operating Officer ofSTI-Makati.

In the said Petition, the Parent Company asserted that the Writ of Execution was issued withundue haste when there were pending issues to be resolved by labor arbiter with respect to thecomputation of the judgment award of the former employee. In addition, labor arbiter, cannotorder the former employee to be reinstated as Chief Operating Officer of STI-Makati becausesaid position no longer exists. The Parent Company averred that an order of separation pay inlieu of reinstatement should be issued in favor of the former employee.

On October 28, 2015, the Parent Company filed another Petition with the NLRC, whichsought to inhibit the labor arbiter from continuing the execution proceedings for the formeremployee’s judgment award. In the said Petition, the Parent Company alleged that the actionsof the labor arbiter showed partiality and bias in favor of the former employee.

On October 29, 2015, the Parent Company filed a Motion to Consolidate with the NLRC. Inthe said Motion, the Parent Company moved that the aforesaid Petitions would beconsolidated and resolved by the same Division of the NLRC.

The former employee, thru her new counsel, filed two (2) Entry of Appearance with Motionfor Leave (To Admit Attached Answer with Comment/Opposition) for the two (2) Petitions ofthe Parent Company. In the said Comment/Opposition, the former employee averred that (a)the Writ of Execution was issued pursuant to the Supreme Court’s Decision dated July 9, 2014and (b) the acts of labor arbiter were above-board.

On February 29, 2016, the Sixth Division of the NLRC issued a Decision wherein it, amongothers, nullified the Writ of Execution, and ordered the inhibition of labor arbiter. In the sameDecision, the Sixth Division of the NLRC also set a guide for the enforcement of the judgmentaward in favor of the former employee, which provides, among others, that the computation ofthe backwages of the former employee shall be from May 18, 2004 until October 30, 2006.

On March 29, 2016, the Parent Company received the former employee’s Motion forReconsideration. In the Motion for Reconsideration, the former employee questioned theguide issued by the NLRC and the inhibition of the labor arbiter.

On April 19, 2016, the Parent Company filed a Motion for Leave (To Admit Comment and/orOpposition with Manifestation). In the Comment and/or Opposition, the Parent Companydefended the guide issued by the Sixth Division of the NLRC and the inhibition on the laborarbiter by, among others, asserting that the former employee’s grounds for reconsideration ofthe Decision are based on misleading allegations, and misquoted orders and pleadings of theCorporation. The Parent Company also manifested to that (1) it would no longer seek thecancellation of the Writ of Execution provided that any legal effect thereof on the judgmentaward shall be recognized and applied therein, and (2) the appropriate labor arbiter commencewith the computation of the separation pay in lieu of reinstatement.

On July 1, 2016, the Parent Company received the Resolution of the NLRC, which denied theformer employee’s Motion for Reconsideration.

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On September 6, 2016, the Parent Company received the Petition for Certiorari filed by theformer employee to the Court of Appeals wherein she questioned the Decision datedFebruary 29, 2016 and Resolution dated June 28, 2016 issued by the NLRC. In the Petition,the former employee reiterated all her grounds in the Motion for Reconsideration filed to theNLRC.

On September 26, 2016, the Parent Company filed its Comment/Opposition Ad Cautelam. Inthe said Comment/Opposition, the Parent Company reiterated its arguments raised against theformer employee’s Motion for Reconsideration. In addition, the Parent Company raised that(a) the issue on annulment of the Writ of Execution should be deemed moot because theParent Company has already manifested that it would no longer enforce said decision, and (b)the former employee should show proof that the Motion for Reconsideration was actually filedto the NLRC within the period allowed by law or otherwise, the Petition should be denied dueto non-exhaustion of administrative remedies.

Upon filing of extension to file Reply to the Comment/Opposition Ad Cautelam of the ParentCompany, the former employee filed her Reply thereto on October 19, 2016.

On October 24, 2016, the Court of Appeals referred the case for mediation with the PhilippineMediation Center-Court of Appeals. Based on the relevant rules, the mediator assigned in theinstant case has an extendible thirty (30) days to complete the mediation proceeding. Shouldthe parties fail to settle the instant case, the case shall be referred to the Court of Appeals forresolution.

Both parties attended the mediation hearing wherein both parties provided their respectivesettlement amount wherein the former employee rejected the last proposal made by STI ESG.Considering that both parties failed to amicably settle, the mediation proceedings wasterminated.

On April 11, 2017, STI ESG received the Court of Appeals’ Resolution which required bothparties to file their respective Memoranda within a non-extendible period of fifteen (15) daysfrom receipt thereof or until April 26, 2017.

In compliance with the aforesaid Resolution the Parent Company filed its Memorandum onApril 26, 2017.

On June 6, 2017, STI ESG received the Court of Appeal’s Decision on the former employee’sPetition for Certiorari. In the Decision, the Court of Appeals determined that there is no needto resolve the issue on the nullification of the Partial Writ of Execution because both partiesagreed that the funds garnished by virtue of said Writ to the former employee shall beconsidered as partial satisfaction of her judgment award.

The Court of Appeals likewise clarified that the issue on the former employee’s waiver ofreinstatement pending appeal should have been resolved by the new labor arbiter, and not theNLRC. Contrary to the former employee’s assertion that the former labor arbiter resolved thesaid issue, the Court of Appeals took into consideration that the NLRC validly ordered the re-raffle of the case to a new labor arbiter who should resolve all pending incidents and issues.

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Without making any findings and/or rulings contrary to STI ESG’s claim that the formeremployee waived her reinstatement pending appeal on October 2006 and consequentlyinvalidated her assertion that her backwages should be computed from May 2004 until presentday, the Court of Appeals affirmed the re-raffle of the execution proceedings of the formeremployee’s judgment award to a new labor arbiter to make an independent determination ofall pending incidents and issues.

Considering the aforesaid Decision did not prejudice STI ESG’s position, STI ESG decided torefer all pending issues on the execution of the judgment award of the former employee,including the waiver of backwages pending appeal, to the new labor arbiter.

To date, there is no notice that the case has already been referred to the new labor arbiterand/or filing of any Motion for Reconsideration by the former employee on the aforesaidDecision.

c. Specific Performance Case. STI College Cebu, Inc. (STI Cebu) was named defendant in acase filed by certain individuals for specific performance and damages. In their Complaint, thePlaintiffs sought the execution of Deed of Absolute Sale over a parcel of land situated in CebuCity on the bases of an alleged perfected contract to sell. On March 15, 2016, STI ESG, as thesurviving corporation in the merger between STI ESG and STI Cebu, filed a Motion toDismiss. On March 31, 2016, the Parent Company received the Plaintiffs’Comment/Opposition to Motion to Dismiss with Motion to Declare Defendant in Default(Motion). On April 8, 2016, the Court required the Parent Company and the Plaintiffs to filetheir respective Position Papers to the Motion to Dismiss and the Plaintiffs’ Motion until April13, 2016. On April 12, 2016, the Parent Company received the Plaintiff’s Position Paper. TheParent Company, on April 13, 2016, filed its Position Paper.

On April 14, 2016, the Parent Company filed a Manifestation with an attached Position Paper.

On August 2, 2016, the Parent Company received the Plaintiffs’ Motion to Resolve, whichseeks for the resolution of all pending incidents.

On August 11, 2016, the Parent Company filed a Comment dated August 10, 2016 to thePlaintiffs’ Motion to Resolve. In the Comment, the Parent Company also moved for theresolution of all pending incidents including the Motion to Dismiss filed by the ParentCompany, and reiterated the propriety of the dismissal of the instant case.

On August 12, 2016, the hearing on the Motion to Resolve proceeded wherein the ParentCompany reiterated its Motion(s) to Dismiss, and moved for the resolution of all pendingincidents in the instant case. The Trial Court then ordered that all of the pending incidentsshall be resolved.

On February 28, 2017, the Defendants received the Resolution of the Trial Court wherein itdenied the Defendants’ Motion to Dismiss.

On March 6, 2017 the Defendants filed their Joint Motion for Reconsideration Ad Cautelam inrelation to the Resolution.

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On March 14, 2017, the Defendants received the Plaintiffs’ Comment/Opposition to JointMotion Reconsideration Ad Cautelam and/or Motion to Declare Defendants in Default dated11 March 2017 (Comment with Motion). In the Comment with Motion, Plaintiffs alleged thatthe Defendants should have filed their Answer instead of the Joint Motion for ReconsiderationAd Cautelam after the denial of their Motions to Dismiss. Considering that the Defendants didnot file their Answer, Plaintiffs moved to declare the Defendants in default.

On March 17, 2017, the Defendants filed and served in open court their Reply and/orComment/Opposition Ad Cautelam (Reply) to the Plaintiffs’ Comment with Motion. In theReply, the Defendants asserted that under the relevant provisions of the Rules of Court andjurisprudence, a motion for reconsideration is allowed to be filed after the denial of a motionto dismiss. Consequently, the filing of the Answer is deemed suspended while the JointMotion for Reconsideration Ad Cautelam is pending for resolution.

Upon receipt of the Plaintiffs’ Reply on April 3, 2017, the Defendants filed the JointRejoinder wherein they asserted that the Reply is a reiteration of the Plaintiffs’ baselessargument that a motion for reconsideration is prohibited.

With the filing of the aforesaid pleadings, the Joint Motion and Plaintiffs’ Motion to DeclareDefendants in Default are submitted for resolution.

d. Complaint for Damages filed by GATE (formerly STI-College Santiago, Inc.). GlobalAcademy of Technology and Entrepreneurship, Inc. (GATE) filed a complaint for Damagesagainst STI ESG for its non-renewal of the Licensing Agreement despite the former’s allegedcompliance of the latter’s audit recommendations. On the basis of such alleged invalid non-renewal of the Licensing Agreement, GATE seeks for (a) moral damages in the amount of₱0.5 million, (b) exemplary damages in the amount of ₱0.5 million and (c) attorney’s fees inthe amount of 15% of the amount to be awarded and ₱3.0 thousand per court appearance.

On January 23, 2017, STI ESG filed its Motion to Dismiss Ad Cautelam. In the said Motion,STI ESG asserted that the dismissal of the case was warranted on the following grounds; (a)lack of jurisdiction over STI ESG due to improper service of Summons to a Human RelationsOfficer (HR Officer), and (b) failure to state a cause of action because GATE has no right forthe renewal of the Licensing Agreement when (i) the same already expired and (ii) it clearlyprovides that it may be renewed by mutual agreement of the parties. The Motion to DismissAd Cautelam was set for hearing on February 3, 2017.

On February 3, 2017, STI ESG received GATE’s Comment /Opposition. In the saidComment/Opposition, GATE alleged that (a) the HR Officer was allegedly authorized by itsin house counsel to receive the Summons, and (b) the decision of STI ESG not to renew theLicensing Agreement was not based on its mutual agreement provision but the violations ofGATE. Consequently, such decision of STI ESG to cancel the Licensing Agreement wasallegedly in bad faith.

Upon the filing of all the pleadings in relation to the Motion to Dismiss Ad Cautelam of STIESG, the Trial Court issued its Resolution dated May 16, 2017, which denied the said Motion.The Trial Court also required STI ESG to file its Answer to the Complaint within the non-extendible fifteen (15) days from receipt of said Resolution on May 25, 2017 or until June 9,2017.

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On June 9, 2017, STI ESG filed its Answer to the Complaint. In the Answer, STI ESGreiterated its position that GATE has no cause of action against it because its decision not torenew the Licensing Agreement is in accordance with contractual stipulations therein that itsrenewal is upon mutual agreement of both parties. Considering the effectivity period of theLicensing Agreement expired on March 31, 2016 without being renewed by both parties,GATE cannot claim any damages for STI ESG’s lawful exercise of its rights under theLicensing Agreement.

On June 19, 2017, the Trial Court issued its Order referring the parties to Court-AnnexedMediation on July 14, 2017.

Both parties are required to participate in the said mediation hearing. Should the parties fail toamicably settle the instant case, the case shall undergo Judicial Dispute Resolution before theTrial Court as part of the pre-trial proceedings.

e. Criminal Case. A complaint for qualified theft was filed by the Company against its formerschool accounting supervisor and acting school accountant (former supervisor/accountant). Inthe complaint, the Parent Company alleged that said former supervisor/accountantmanipulated the payroll registers of STI College Global City by including the name of aformer faculty member of STI College Global City in the payroll registers and placing acorresponding salary and 13th month pay beside said faculty member’s name. The salary ofsaid former faculty member was deposited in a bank account belonging to the formersupervisor/accountant. The total amount deposited to the bank account of the formersupervisor/accountant through this scheme amounted to ₱0.2 million.

The complaint for qualified theft was filed with Office of the City Prosecutor of Taguig City.Summons to the former supervisor/accountant was returned undelivered despite the Companyproviding additional addresses of the former supervisor/accountant where the summons couldbe served.

After the former supervisor/accountant failed to appear on two preliminary investigations, thecomplaint was submitted for resolution.

On September 8, 2016, STI ESG filed an Ex-Parte Motion for Early Resolution to resolvethe case pointing out that more than sixteen (16) months has elapsed since the matter wassubmitted for resolution.

To date, there is no resolution issued by the Office of the City Prosecutor of Taguig City.

f. Due to the nature of the Parent Company’s business, it is involved in various legalproceedings, both as plaintiff and defendant, from time to time. The majority of outstandinglitigation involves illegal dismissal cases under which faculty members have brought claimsagainst the Parent Company by reason of their faculty contract. Except as discussed in (b), (c),(d) and (e), the Parent Company is not engaged in any legal or arbitration proceedings (eitheras plaintiff or defendant), including those which are pending or known to be contemplated andits BOD has no knowledge of any proceedings pending or threatened against the ParentCompany or its franchises or any facts likely to give rise to any litigation, claims orproceedings which might materially affect its financial position or business. Management andits legal counsels believe that the Parent Company has substantial legal and factual bases forits position and is of the opinion that losses arising from these legal actions and proceedings, ifany, will not have a material adverse impact on the Parent Company’s consolidated financialposition and results of operations.

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g. Other subsidiaries also stand as defendant of various lawsuits and claims filed by their formeremployees. The complainants are seeking payment of damages such as backwages andattorney’s fees

As at July 6, 2017, the cases are pending before the labor arbiter.

Management and their legal counsels believe that the outcome of these cases will not have asignificant impact on the consolidated financial statements.

Commitments

a. Financial Commitments

The Parent Company has a ₱65.0 million domestic bills purchase lines from various localbanks specifically for the purchase of local and regional clearing checks. Interest ondrawdown from such facility is waived except when drawn against returned checks to whichthe interest shall be the prevailing lending rate of such local bank. This facility is substantiallyon a clean basis except for a ₱5.0 million line which calls for the surety of a majorshareholder.

b. Capital Commitments

As at March 31, 2017, the Group has contractual commitments and obligations for theconstruction of classrooms and faculty rooms in STI Batangas and for the renovation works inSTI Novaliches aggregating ₱38.8 million of which ₱24.5 million has been paid in 2017.

As at March 31, 2016, the Group has contractual commitments and obligations for theconstruction of the STI Las Piñas campus aggregating ₱290.0 million. Unpaid balances as atMarch 31, 2017 and 2016 amounted to ₱16.7 million and ₱96.8 million, respectively.

As at March 31, 2015, the Group has contractual commitments and obligations for theconstruction of a gymnasium, a warehouse and additional classrooms in Ortigas-Cainta, andthe construction of additional classrooms in campuses located in Novaliches and Caloocanaggregating ₱98.5 million. Unpaid balances as at March 31, 2017 and 2016 amounted to niland ₱0.3 million, respectively.

c. Others

The Group, as an educational institution, is subject to CHED Memorandum Order No. 13,Series of 1998, otherwise known as the “Guidelines on the Procedure to be Followed byHigher Education Institutions (HEIs) Intending to Increase their Tuition Fees, EffectiveBeginning SY 1998–1999,” which states that 70.00% of the proceeds derived from the tuitionfee increase for the current school year should be used for the payment of increase in salariesand wages, allowances and other benefits of its teaching and non-teaching personnel and otherstaff, except those who are principal stockholders of the HEIs.

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32. Financial Risk Management Objectives and Policies

The principal financial instruments of the Group comprise cash and cash equivalents andinterest-bearing loans and borrowings. The main purpose of these financial instruments is to raiseworking capital and major capital investment financing for the Group’s school operations. TheGroup has various other financial assets and liabilities such as receivables and accounts payableand other current liabilities which arise directly from its operations.

The main risks arising from the Group’s financial instruments are liquidity risk, credit risk andinterest rate risk. The Parent Company’s BOD and management reviews and agrees on thepolicies for managing each of these risks as summarized as follows.

Liquidity RiskLiquidity risk arises from the possibility that the Group may encounter difficulties in raising fundsto meet its currently maturing commitments. The Group’s liquidity profile is managed to be ableto finance its operations and capital expenditures and other financial obligations. To cover itsfinancing requirements, the Group uses internally-generated funds and interest-bearing loans andborrowings. As part of its liquidity risk management program, the Group regularly evaluates theprojected and actual cash flow information and continuously assesses conditions in the financialmarkets for opportunities to pursue fund-raising initiatives.

Any excess funds are primarily invested in short-dated and principal-protected bank products thatprovide flexibility of withdrawing the funds anytime. The Group regularly evaluates availablefinancial products and monitors market conditions for opportunities to enhance yields atacceptable risk levels.

The Group’s current liabilities are mostly made up of trade liabilities with 30 to 60-day paymentterms, current portion of interest-bearing loans and borrowings that are expected to mature withinone year after reporting date. On the other hand, the biggest components of the Group’s currentassets are cash and cash equivalents, receivables from students and franchisees and advances toassociates and joint ventures with credit terms of 30 days.

As at March 31, 2017 and 2016, the Group’s current assets amounted to ₱3,458.8 million and₱920.1 million, respectively, while current liabilities amounted to ₱1,013.8 million and₱556.2 million, respectively.

As part of the Group’s liquidity risk management program, management regularly evaluates theprojected and actual cash flow information.

In relation to the Group’s interest-bearing loans and borrowings the debt service coverage ratio,based on the consolidated financial statements of the Group is also monitored on a regularbasis. The debt service coverage ratio is equivalent to the consolidated EBITDA divided by totalprincipal and interests due for the next twelve months. The Group monitors its debt servicecoverage ratio to keep it at a level acceptable to the Group and the lender bank. The Group’spolicy is to keep the debt service coverage ratio not lower than 1.05:1.

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The tables below summarize the maturity profile of the Group’s financial assets held for liquiditypurposes and other financial liabilities based on undiscounted contractual payments.

2017Not Yet

DueLess than2 Months

2 to 3Months

3 to 12Months

More than 1Year Total

Financial AssetsLoans and receivables: Cash and cash equivalents ₱2,880,282,731 ₱– ₱– ₱– ₱– ₱2,880,282,731 Receivables* 120,120,873 54,938,381 27,772,956 129,253,016 – 332,085,226 Rental deposits (included as part

of the “Goodwill, intangibleand other noncurrent assets”account) 39,555,558 39,555,558

AFS financial assets 50,870,755 50,870,755₱3,000,403,604 ₱54,938,381 ₱27,772,956 ₱129,253,016 ₱ 90,426,313 ₱3,302,794,270

Financial LiabilitiesOther financial liabilities: Bonds payable Principal ₱– ₱– ₱– ₱– ₱3,000,000,000 ₱3,000,000,000 Interest 178,905,220 1,230,271,080 1,409,176,300 Interest-bearing loans and

borrowings: Principal – – – 585,800,000 734,400,000 1,320,200,000 Interest – – – 38,777,000 79,142,000 117,919,000 Accounts payable and other

current liabilities** 149,993,714 51,083,983 4,168,977 165,940,716 – 371,187,390 Obligations under finance lease Principal – – – 4,912,919 6,473,749 11,386,668 Interest – – – 594,642 485,992 1,080,634 Other noncurrent liabilities*** – – – – 17,821,827 17,821,827

₱149,993,714 ₱51,083,983 ₱4,168,977 ₱ 974,930,497 ₱5,068,594,648 ₱6,248,771,819

2016Not Yet

DueLess than2 Months

2 to 3Months

3 to 12Months

More than 1Year Total

Financial AssetsLoans and receivables: Cash and cash equivalents ₱542,171,072 ₱– ₱– ₱– ₱– ₱542,171,072 Receivables* 58,664,428 38,759,266 21,492,838 115,096,225 – 234,012,757 Rental deposits (included as part

of the “Goodwill, intangibleand other noncurrent assets”account) – – – – 37,980,890 37,980,890

AFS financial assets – – – – 50,023,635 50,023,635₱600,835,500 ₱38,759,266 ₱21,492,838 ₱115,096,225 ₱88,004,525 ₱864,188,354

Financial LiabilitiesOther financial liabilities: Interest-bearing loans and

borrowings: Principal ₱– ₱– ₱– ₱100,800,000 ₱775,200,000 ₱876,000,000 Interest – – – 41,574,341 118,517,183 160,091,524 Accounts payable and other

current liabilities** 130,674,829 12,165,770 24,854,952 194,148,107 – 361,843,658 Obligations under finance lease Principal – – – 5,729,488 7,313,184 13,042,672 Interest – – – 640,886 442,886 1,083,772 Other noncurrent liabilities*** – – – – 11,036,239 11,036,239

₱130,674,829 ₱12,165,770 ₱24,854,952 ₱342,892,822 ₱912,509,492 ₱1,423,097,865* Excluding advances to officers and employees amounting to ₱19.5 million and ₱20.8 million as at March 31, 2017 and 2016, respectively.** Excluding subscriptions payable and government and other statutory liabilities amounting to ₱8.0 million and ₱24.0 million as at March

31, 2017and 2016, respectively.*** Excluding advance rent and deferred lease liability amounting to ₱41.3 million and ₱20.3 million as at March 31, 2017 and 2016, respectively

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The Group’s current ratios are as follows:

2017 2016Current assets ₱3,458,790,995 ₱920,126,827Current liabilities 1,013,782,131 556,158,910Current ratios 3.412:1.000 1.654:1.000

Credit RiskCredit risk is the risk that the Group will incur a loss arising from students, franchisees or othercounterparties that fail to discharge their contractual obligations. The Group manages and controlscredit risk by setting limits on the amount of risk that the Group is willing to accept for individualcounterparties and by monitoring expenses in relation to such limits.

It is the Group’s policy to require the students to pay all their tuition and other school fees beforethey can get their report cards and other credentials. In addition, receivable balances aremonitored on an ongoing basis with the result that the Group’s exposure to bad debts is notsignificant.

With respect to credit risk arising from the other financial assets of the Group, which comprisecash and cash equivalents and AFS financial assets, the Group’s exposure to credit risk arises fromdefault of the counterparty, with a maximum exposure equal to the carrying amount of theseinstruments. At financial reporting date, there is no significant concentration of credit risk.

Credit Risk Exposures. The table below shows the maximum exposure to credit risk for thecomponents of the consolidated statements of financial position:

2017 2016Gross

MaximumExposure(1)

NetMaximumExposure(2)

GrossMaximumExposure(1)

NetMaximumExposure(2)

Financial AssetsLoans and receivables: Cash and cash equivalents (excluding cash on

hand) ₱2,879,521,739 ₱2,863,021,739 ₱541,382,280 ₱524,882,280 Receivables* 332,085,226 332,085,226 234,012,756 234,012,756

Advances to associates and joint ventures (includedas part of the “Investments in and advances toassociates and joint ventures” account) - - 20,166,002 20,166,002

Rental deposits (included as part of the “Goodwill,intangible and other noncurrent assets”account) 39,555,558 39,555,558 37,980,890 37,980,890

AFS financial assets 50,870,755 50,870,755 50,023,635 50,023,635₱3,302,033,278 ₱3,285,533,278 ₱883,565,563 ₱867,065,563

* Excluding advances to officers and employees amounting to ₱19.5 million and ₱20.8 million as at March 31, 2017 and 2016, respectively.(1) Gross financial assets before taking into account any collateral held or other credit enhancements or offsetting arrangements.(2) Gross financial assets after taking into account any collateral held or other credit enhancements or offsetting arrangements or insurance in case of

bank deposits.

The credit quality of neither past due nor impaired financial assets were determined asfollows:a. Cash and cash equivalents. These financial assets are classified based on the nature of the

counterparty and the Group’s internal rating system. Cash and cash equivalents are heldby banks that have good reputation and low probability of insolvency.

b. Receivables. These are current receivables with no default in payment.c. Rental deposits. These financial assets are classified as high grade since the

counterparties are not expected to default in settling their obligations.

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The table below shows the aging analysis of financial assets that are past due but not impaired:

2017Neither

Past Due but not ImpairedPast DueNor Impaired 31 to 60 Days 61 to 90 Days Impaired Total


(excluding cash on hand) ₱2,879,521,739 ₱– ₱– ₱– ₱2,879,521,739 Receivables* 120,120,873 54,938,381 157,025,972 79,534,228 411,619,454 Rental deposits (included as part of

the “Goodwill, intangible andother noncurrent assets”account) 39,555,558 - - -- 39,555,558

AFS financial assets 50,870,755 - - - 50,870,755₱ 3,090,068,925 ₱ 54,938,381 ₱ 157,025,972 ₱79,534,228 ₱ 3,381,567,506

2016Neither

Past Due but not ImpairedPast DueNor Impaired 31 to 60 Days 61 to 90 Days Impaired Total


(excluding cash on hand) ₱541,382,280 ₱– ₱– ₱– ₱541,382,280 Receivables* 58,664,428 38,759,266 136,589,062 85,083,311 319,096,067 Rental deposits (included as part of

the “Goodwill, intangible andother noncurrent assets”account) 37,980,890 – – – 37,980,890

AFS financial assets 50,023,635 – – – 50,023,635₱688,051,233 ₱38,759,266 ₱136,589,062 ₱85,083,311 ₱948,482,872

* Excluding advances to officers and employees amounting to ₱19.5 million and ₱20.8 million as at March 31, 2017 and 2016respectively.

Interest Rate Risk. Interest rate risk is the risk that the fair value or future cash flows of a financialinstrument will fluctuate because of changes in market interest rates. Fixed rate financialinstruments are subject to fair value interest rate risk while floating rate financial instruments aresubject to cash flow interest rate risk. The Group’s interest rate risk management policy centerson reducing the overall interest expense and exposure to changes in interest rates. Changes inmarket interest rates relate primarily to the Group’s interest-bearing loans and borrowings withfloating interest rate as it can cause a change in the amount of interest payments.

The Group’s exposure to interest rate risk also includes its cash and cash equivalents balance.Interest rates for the Group’s cash deposits are at prevailing interest rates. Due to the magnitudeof the deposits, significant change in interest rate may also affect the consolidated statements ofcomprehensive income.

The following table demonstrates the sensitivity, to a reasonably possible change in interest rates,with all other variables held constant, of the consolidated statements of comprehensive income andstatements of changes in equity as at March 31, 2017, 2016 and 2015:

Effect on Income Before Income Tax

Increase/decrease in Basis Points(bps) 2017 2016 2015

+100 bps (₱37,752,000) (₱8,760,000) (₱10,920,000)-100 bps 37,752,000 8,760,000 10,920,000

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Capital Risk Management PolicyThe Group’s objectives when managing capital are to provide returns for stockholders and benefitsfor other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The Group manages its capital structure and makes adjustments to it in light of changes ineconomic conditions. The Group is not subject to externally imposed capital requirements.

The Group monitors capital using the debt-to-equity ratio which is computed as the total of currentand noncurrent liabilities, net of unearned tuition and other school fees, divided by total equity.The Group monitors its debt-to-equity ratio to keep it at a level acceptable to the Group and thelender bank. The Group’s policy is to keep the debt-to-equity ratio at a level not exceeding 1.5:1.

The Group considers its equity contributed by stockholders as capital.

2017 2016Capital stock ₱3,081,871,859 ₱3,081,871,859Additional paid-in capital 379,937,290 379,937,290Retained earnings 3,062,770,493 3,539,890,986

₱6,524,579,642 ₱7,001,700,135

The Group’s debt-to-equity ratios are as follows:

2017 2016Total liabilities* ₱4,794,395,544 ₱1,354,954,359Total equity 6,492,014,878 7,101,995,128Debt-to-equity ratio 0.739:1.000 0.191:1.000*Excluding unearned tuition and other school fees

The Group’s asset-to-equity ratios shown below:

2017 2016Total assets ₱11,315,993,981 ₱8,510,175,383Total equity 6,492,014,878 7,101,995,128Asset-to-equity ratio 1.743:1.000 1.198:1.000

No changes were made in the objectives, policies or processes in 2017 and 2016.

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33. Fair Value Information of Financial Instruments

The following tables set forth the carrying amounts and estimated fair values of consolidatedfinancial assets and liabilities recognized as at March 31, 2017 and 2016. There are no materialunrecognized financial assets and liabilities as at March 31, 2017 and 2016:


Financial AssetsLoans and receivables: Rental deposits ₱39,555,558 ₱39,274,985 ₱– ₱– ₱39,274,985AFS investments – quoted 3,808,240 3,808,240 3,808,240

₱43,363,798 43,083,225 ₱3,808,240 ₱– ₱39,274,985


Obligations under finance lease ₱11,386,668 ₱7,267,415 ₱– ₱– ₱7,267,415Refundable deposits 19,235,201 17,369,983 – – 17,369,983

₱30,621,869 ₱24,637,398 ₱– ₱– 24,637,398


Financial AssetsLoans and receivables: Rental deposits ₱37,980,890 ₱37,071,899 ₱– ₱– ₱37,071,899AFS investments – quoted 2,961,120 2,961,120 2,961,120 – –

₱40,942,010 ₱40,033,019 ₱2,961,120 ₱– ₱37,071,899


Obligations under finance lease ₱13,042,672 ₱12,381,388 ₱– ₱– P=12,381,388Refundable deposits 13,488,936 9,780,959 9,780,959

₱26,531,608 ₱22,162,347 ₱– ₱– ₱22,162,347

Fair Value of Financial InstrumentsThe following methods and assumptions were used to estimate the fair value of each class offinancial instrument for which it is practicable to estimate such value:

Cash and Cash Equivalents, Receivables and Accounts Payable and Other Current Liabilities.Due to the short-term nature of transactions, the fair values of these instruments approximate thecarrying amounts as of financial reporting date.

Rental Deposits. The fair values of these instruments are computed by discounting the faceamount using PDST-R2 rate of 2.68%-5.01% and 1.77%-5.04% as at March 31, 2017 and 2016,respectively.

AFS Financial Assets. The fair values of publicly-traded AFS financial assets, classified underLevel 1, are determined by reference to market bid quotes as at financial reporting date. AFSfinancial assets in unquoted equity securities for which no reliable basis for fair valuemeasurement is available are carried at cost, net of impairment.

Interest-bearing Loans and Borrowings. The carrying value approximates its fair value becauseof recent and regular repricing based on market conditions.

Obligations under Finance Lease. The fair values of obligations under finance are computedbased on discounted present value of lease payments using 2.42%-4.26% and 1.76%-9.50% as atMarch 31, 2017 and 2016 respectively.

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Refundable Deposits. The fair values of obligations under finance are computed based ondiscounted present value of lease payments using 2.82%-4.25% and 2.93%-3.46% as at March 31,2017 and 2016 respectively.

In 2017 and 2016, there were no transfers between Level 1 and 2 fair value measurements, and notransfers into and out of Level 3 fair value measurements.

34. Notes to the Consolidated Statements of Cash Flows

The Group’s material non-cash investing and financing activities pertain to the following:

a. Acquisitions of property and equipment under finance lease recorded under the “Property andequipment” account in the consolidated statements of financial position amounting to₱4.6 million, ₱4.3 million and ₱7.3 million in 2017, 2016 and 2015, respectively (see Note 9).

b. Unpaid progress billing for construction in-progress amounting to ₱14.3 million,₱15.0 million and ₱228.6 million as at March 31, 2017, 2016 and 2015, respectively(see Note 9).

c. Unpaid additions to investment properties for the construction of school buildings amountingto ₱0.5 million as at March 31, 2016 (see Note 10).

d. Uncollected dividends from De Los Santos Medical Center amounting to ₱1.4 million as atMarch 31, 2016 (see Note 13).

e. Unpaid dividends to non-controlling interests of a subsidiary amounting to nil as at March 31,2017 and 2016 and ₱2.4 million as at March 31, 2015.

f. Unpaid subscriptions payable to Maestro Holdings amounting to and ₱17.5 million as atMarch 31, 2016. (see Note 16).

g. Acquisition of net assets of STI Tagum in exchange for the settlement of receivable fromGITEC amounting to ₱2.1 million in 2015 (see Note 35).

h. Acquisition of the outstanding capital stock of STI Pagadian in exchange for the settlement ofthe debt of GITEC amounting to ₱6.3 million in 2015 (see Note 35).

i. Unpaid liability related to the derecognition of STI Diamond as a subsidiary amounting to₱60.8 million as at March 2017.

j. Reversal of subscription payable associated with the subscription by STI ESG over MaestroHoldings shares amounting to ₱17.5 million in 2016.

k. Derecognition of the net assets of iACADEMY amounting to ₱124.3 million (see Note 19).35. Business Combinations

The Group entered into the following business combinations in 2015:

STI Iloilo. In September 2014, the Parent Company established STI Iloilo with an initial capital of₱5.0 million which was used to acquire in October 2014 the net assets of an STI school that was

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owned and operated by a franchisee in Jaro, Iloilo for ₱6.0 million. The transaction was accountedfor as a business combination.

STI Lipa and STI Tanauan. In October 2014, the Parent Company acquired 100% of theoutstanding capital stock of STI schools in Lipa and Tanauan, Batangas which were owned andoperated by franchisees. The total acquisition cost amounted to ₱5.0 million and ₱1.0 million,respectively.

STI Pagadian. In October 2014, Gillamac Information Technology Center Inc. (GITEC, afranchisee), the shareholders of GITEC and STI ESG entered into a deed of assignment wherebyGITEC assigned its rights over the outstanding capital stock of STI Pagadian in exchange for thesettlement of its debt to the Parent Company. In addition, the Parent Company also assumed thesubscriptions payable of the shareholders of GITEC amounting to ₱15.0 million (see Note 14).

STI Tagum. Also in October 2014, the Parent Company acquired the net assets of a school locatedin Tagum, Davao del Norte from GITEC in exchange for the settlement of the receivable fromGITEC amounting to ₱2.1 million. The transaction was accounted for as a business combination.The difference between the fair value of the net assets acquired and the cost resulted in a gainamounting to ₱2.1 million which is presented as “Excess of fair values of net assets acquired overacquisition cost from a business combination” in the 2015 statement of comprehensive income.

Effective October 2014, the Group gained control over the financial and reporting policies of theabove-mentioned schools.

The purchase price consideration for the above-mentioned schools has been allocated to the assetsand liabilities based on fair values at the date of acquisition resulting in goodwill as follows:

STI Lipa ₱8,857,790STI Tanauan 4,873,058STI Iloilo 3,806,173STI Pagadian 3,396,880

₱20,933,901

The purchase price allocation was finalized in 2016.

The carrying values of the financial assets and liabilities and other assets recognized at the date ofacquisition approximate their fair values due to the short-term nature of the transactions.

The acquired schools are engaged in the operation of educational institutions offering tertiaryformal education, post-secondary certificate courses and short-term courses. These schools wereacquired to expand the Group’s controlled network of schools and be able to improve itsoperations.

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*SGVFS025579*

36. Events after the Reporting Period

a. On May 18, 2016, STI ESG entered into a Memorandum of Agreement to acquire for₱20.0 million the net assets of an STI franchised school located in Santa Maria, Bulacan. OnMay 31, 2016, STI ESG made an initial deposit of ₱10.0 million for the planned acquisition.On February 8, 2017, STI ESG made an additional deposit of ₱8.0 million.

On April 4, 2017, STI ESG established STI College of Santa Maria, Inc. (STI Sta. Maria). OnMay 23, 2017, STI Sta. Maria entered into a Deed of Assignment with Halili ReyesEducational Institution, Inc. (HREI) where HREI assigned, transferred and conveyed in amanner absolute and irrevocable, and free and clear of all liens and encumbrances, to STI Sta.Maria all its rights, title and interest in its assets and liabilities for a price of ₱20.0 million.The assignment of the net assets shall retroact to April 1, 2017. On the same date, STI Sta.Maria paid the remaining balance of ₱2.0 million.

b. On April 21, 2017, STI ESG, Mr. Tony Tan Caktiong (TTC), STI Tanauan, and InjapInvestments, Inc. (Injap), referred collectively as the Joint Venture Parties, entered into anagreement to transform STI Tanauan into a Joint Venture Company which shall operate afarm-to-table school that offers courses ranging from farm production to food services.

The Joint Venture Parties also agreed to increase STI Tanauan’s authorized capital stock to anamount that will be agreed by the Joint Venture Parties in a separate agreement. As agreed bythe Joint Venture Parties, the increase in the authorized capital stock will be made through STITanauan’s declaration of stock dividends to STI ESG based on STI Tanauan’s unrestrictedretained earnings as of March 31, 2017 and cash payments by the Joint Venture Parties.

Additional amendments shall be made to STI Tanauan’s Articles of Incorporation and By-Laws to implement the intent of the parties under the Joint Venture Agreement.

The equity sharing in the Joint Venture Company will be 60%, 25% and 15% for STI ESG,TTC and Injap, respectively.

On June 21, 2017, in separate meetings, the stockholders and the BOD of STI Tanauanapproved the increase in the authorized capital stock of the corporation from ₱1,000,000divided into 10,000 shares with a par value of ₱100 to ₱75,000,000 divided into 750,000shares with a par value of ₱100. The increase will be funded through the declaration of stockdividends and cash subscriptions by the shareholders. In the same meeting, the stockholdersand the BOD approved the declaration of 150,000 shares as stock dividends with an aggregatepar value of ₱15,000,000 to be distributed to stockholders of record as of March 31, 2017based on the unrestricted retained earnings of STI Tanauan as shown in its audited financialstatements as of March 31, 2017.

c. On June 27, 2017, the BOD of STI ESG approved the disposition of its 20% stake in MaestroHoldings in whole or in part, subject to compliance with all regulatory requirements for thedisposal of the said shares. The rationale for this disposition is to enable STI ESG to focus onits core business of offering educational services.

- 84 -

*SGVFS025579*

d. On July 5, 2017, STI ESG executed a Deed of Absolute Sale with Abacus GlobalTechnovisions, Inc. for the purchase of a parcel of land with an area of 2,873 square meterssituated at Poblacion, City of Lipa, Province of Batangas for a total consideration of₱86.2 million. On the same date, STI ESG executed Deeds of Absolute Sale with AseanCommodity Enterprises for the purchase of two parcels of lot aggregating to 349 squaremeters at Poblacion, City of Lipa, Province of Batangas for a total consideration of₱10.5 million. This will be the site of the new STI Academic Center Lipa (see Note 14).

STI EDUCATION SERVICES GROUP, INC. AND SUBSIDIARIES INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS March 31, 2017

Schedule Content A Financial Assets

B Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties)

C Amounts Receivable from/Payable to Related Parties which are Eliminated During the Consolidation of the Financial Statements

D Intangible Assets – Other Assets E Long-Term Debt

F Indebtedness to Related Parties (Long-Term Loans from Related Companies)

G Guarantees of Securities of Other Issuers H Capital Stock I Retained Earnings Available for Dividend Declaration

J Map of Relationships Between and Among the Company and Its Ultimate Parent Company, Middle Parent, Subsidiaries or Co-Subsidiaries and Associates

K Schedule of All the Effective Standards and Interpretations L Financial Soundness Indicators M Report on the use of proceeds

STI EDUCATION SERVICES GROUP, INC. AND SUBSIDIARIES

Schedule A. Financial Assets

Name of Issuing entity and

association of each issue

Number of shares or

principal amount of

bonds and notes

Amount shown in the balance

sheet

Valued based on market

quotation at end of reporting

period period Income received and accrued

(e.g., Loans and Receivables, Fair Value Through Profit or Loss, Held to Maturity Investments, Available for Sale Securities). This schedule shall be filed in support

of the caption of each class of Financial Assets if the greater of the aggregate cost or the aggregate market value of FVPL as of the end of repor ng period

constitute 5% percent or more of total current assets.

The Group has no financial assets at Fair Value Through Profit or Loss as at March 31, 2017


Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related parties)

Balance at

beginning of

period Additions

Amounts

collected

Amounts

Written‐off Current Not Current

Balance at end

of period

AGUDO, REDJER RANESES Senior School Administrator 340,060 21,261 (136,382) ‐ 224,939 ‐ 224,939

ANCHETA, CAROLINE GRACE Senior School Administrator ‐ 676,309 (142,271) ‐ 534,038 ‐ 534,038

BAUTISTA, TEODORO LLOYDON CALMA VP‐Academics 119,486 28,092 (90,355) ‐ 57,223 ‐ 57,223

BUNDOC, RESTITUTO ODULIO VP‐School Operations 529,010 882,507 (1,017,976) ‐ 393,541 ‐ 393,541

CARBONEL, ANA HROD Head ‐ 490,691 (262,141) ‐ 228,550 ‐ 228,550

DANTES III, FERNANDO TUAZON Academic Quality Manager 108,710 17,634 (64,431) ‐ 61,913 ‐ 61,913

DIMAIN, STANLEY BARRIENTOS School Operations Manager 189,131 21,416 (70,722) ‐ 139,825 ‐ 139,825

DY, JOEL LAGAMAYO School Operations Manager 352,995 19,738 (65,875) ‐ 306,858 ‐ 306,858

GARRIDO, ARMEL ANGELO Event Manager 246,489 20,694 (76,399) ‐ 190,784 ‐ 190,784

IBARRA, MARIFE School Administrator 157,821 16,889 (58,634) ‐ 116,076 ‐ 116,076

JIMENEZ, ARIEL Senior School Administrator ‐ 1,371,411 (784,267) ‐ 587,144 ‐ 587,144

LUZA, JUVEN DERIQUITO Senior School Administrator 359,714 15,261 (62,218) ‐ 312,757 ‐ 312,757

MAGANO, SHIELA ABAD AVP‐School Management 101,837 36,257 (98,599) ‐ 39,495 ‐ 39,495

MANARANG, JENNIFER Senior School Administrator ‐ 642,733 (118,721) ‐ 524,012 ‐ 524,012

PEBENITO, VANNESA VILLAPANDO Shs Development Manager 101,367 251,429 (352,796) ‐ ‐ ‐ ‐

RACADIO, WILFRED VP‐Legal 172,683 19,928 (76,351) ‐ 116,260 ‐ 116,260

SANGALANG, AMIEL VP‐Finance ‐ 445,425 (154,711) ‐ 290,714 ‐ 290,714

SANTOS, MERLIZA AVP‐Finance 172,763 21,014 (71,970) ‐ 121,807 ‐ 121,807

SIBBALUCA, BRANDON Research Head‐IT and Engineering ‐ 216,881 (37,621) ‐ 179,260 ‐ 179,260

TUBONGBANUA, JUAN LUIS FAUSTO BUSTAMANTE VP‐CIS 194,339 18,709 (77,770) ‐ 135,278 ‐ 135,278

Total 3,146,405 5,234,279 (3,820,210) ‐ 4,560,474 ‐ 4,560,474

This schedule shall be filed with respect to each person among the directors, officers, employees, and principal stockholders (other than related parties) from whom an aggregate indebtedness of more

than P100,000 or one percent of total assets, whichever is less, is owed. For the purposes of this schedule, exclude in the determination of the amount of indebtedness all amounts receivable from such

persons for purchases subject to usual terms, for ordinary travel and expense advances and for other such items arising in the ordinary course of business.

Name and Designation of debtor


Schedule C. Amounts Receivable from Related Parties which are eliminated during the consolidation of financial statements

Name and Designation

of debtor

Balance at

beginning of

period Additions

Amounts

collected

Amounts

written off Current Not Current

Balance at end of

period

STI Caloocan 2,435,735 147,820,857 (140,591,939) ‐ 9,664,653 ‐ 9,664,653

STI Dagupan 125,757 6,905,363 (7,031,120) ‐ ‐ ‐ ‐

STI Novaliches 1,176,991 102,671,967 (97,149,933) ‐ 6,699,025 ‐ 6,699,025

STI Taft 154,988 14,117,936 (14,272,924) ‐ ‐ ‐ ‐

STI Tuguegarao 11,048,184 2,388,556 (929,921) ‐ 11,478,500 1,028,319 12,506,819

STI Quezon Avenue 14,241,948 10,752,748 (9,682,147) ‐ 1,061,001 14,251,548 15,312,549

STI Batangas 34,666,378 52,670,755 (29,451,870) ‐ 13,310,316 44,574,947 57,885,263

STI Pagadian 1,583,919 3,566,996 (141,553) ‐ 1,322,611 3,686,751 5,009,362

STI Iloilo 6,166,529 3,319,503 (2,555,322) ‐ 486,627 6,444,083 6,930,710

STI Tanauan 2,081,591 9,163,639 (11,245,230) ‐ ‐ ‐ ‐

STI Lipa 3,906,253 8,837,549 (10,993,372) ‐ 1,125,305 625,125 1,750,430

This schedule shall be filed with respect to each related party (e.g., subsidiary) the balances of receivable from which are eliminated during the

consolidation of the financial statements.


Schedule D. Intangible Assets ‐ Other Assets

Description

Beginning

balance

Additions at

cost

Charged to

cost and

expenses

Charged

to other

accounts

Other changes

additions

(deductions)*

Ending

balance

Goodwill 223,777,646 ‐ ‐ ‐ ‐ 223,777,646

Refundable deposits 37,980,890 4,487,017 1,553,779 176,000 (1,182,570) 39,555,558

Property deposits ‐ 72,764,000 ‐ ‐ ‐ 72,764,000

Intangible assets 34,131,854 1,104,037 9,418,357 ‐ (3,421,696) 22,395,838

Advances to suppliers 53,072,904 77,145,658 ‐ 112,960,475 ‐ 17,258,087

Other noncurrent assets 8,701,461 249,211 ‐ 2,952,473 (3,508,425) 2,489,774

Total 357,664,755 155,749,923 10,972,136 116,088,948 (8,112,691) 378,240,903

This schedule shall be filed in support of the caption Intangible Assets in the balance sheet

* other changes refer to transactions related to the sale of iACADEMY. STI Holdings acquired 100% interest of iACADEMY from STI ESG in September 2016 (see Note 19).


Schedule E. Long Term Debt

Title of Issue and type of

obligation

Amount

authorized by

indenture

Amount shown under

caption "Current portion of

long‐term debt" in related

balance sheet

Amount shown under

caption "Long‐Term Debt" in

related balance sheet

China Banking Corporation ‐ Bank loans:

Maturity Date / Interest Rate

July 31, 2021 / 4.75%*

3,000,000,000 40,800,000 734,400,000

Fixed rate bonds series 7‐year bond due 2024 and

series 10‐year bond due 2027/Interest rates are

5.8085% and 6.3756%, respectively**

3,000,000,000 ‐

2,947,028,638

**presented net of bond issue costs with carrying value of ₱53.0 million in the Statements of Financial Position

This schedule shall be filed in support of the caption Long‐Term Debt in the balance sheet.

*interest bearing loans and borrowings presented in the Statement of Financial Position amounting to ₱1,320.2 million includes short term loans amounting to ₱545.0 million


Schedule F. Indebtedness to Related Parties (Long‐Term Loans from Related Companies)

Name of related partyBalance at beginning of

periodBalance at end of period

This schedule shall be filed to list the total of all noncurrent Indebtedness to Related Parties included in the balance sheet. This schedule

may be omitted if:

(i) The total Indebtedness to Related Parties included in such balance sheet does not exceed five percent of total assets as shown in the

related balance sheet at either the beginning or end of the period; or

(ii) There have been no changes in the information required to be filed from that last previously reported.

The Group has no long‐term loans from related parties as at March 31, 2017


Schedule G. Guarantees of Securities of Other Issuers

Name of issuing entity of securities

guaranteed by the company for

which this statement is filed

Title of issue of

each class of

securities

guaranteed

Total amount

guaranteed and

outstanding

Amount owned

by person for

which statement

is filed Nature of guarantee

This schedule shall be filed with respect to any guarantees of securities of other issuing entities by the issuer for which the

statement is filed.

The Group does not have guarantees of securities of other issuing entities as at March 31, 2017


Schedule H. Capital Stock

Title of

Issue

Number of

Shares

authorized

Number of shares

issued and

outstanding at

shown under related

balance sheet

caption

Number of shares

reserved for options,

warrants, conversion

and other rights

Number of

shares held

by related

parties

Directors,

officers and

employees Others

Common Stock 5,000,000,000 3,081,871,859 ‐ 3,081,871,843 16 ‐

Related Parties Directors, officers and employees

STI EDUCATION SYSTEMS HOLDINGS, INC. 3,040,623,037 CU ERNEST LAWRENCE (Trustee) 2 PRUDENT RESOURCES, INC. 13,076,321 BORJA, RAINERIO M. (Trustee) 2 GONZALES, FRANSCISCO B. JR. (DECEASED) 8,873,692 JACOB, MONICO V. (Trustee) 2 ROSSI, PURIFICACION G. 7,841,118 TANCO, JOSEPH AUGUSTIN L. 2 PRUDENCIO, TOMAS J. 3,732,400 DE MESA, RAUL M. 2 SANTOS, MARIA LOURDES 1,725,000 TANCO, MARTIN K. 1 YOUNG, CAROLINA 1,651,828 LAPUS, JESLI A. 1 RAMOS, DULCE 1,155,447 TANCO, MA. VANESSA ROSE L. 1 BUSTOS, FELIXBERTO 792,283 TANCO, EUSEBIO H. 1 JAYME, CESAR M, JR. 305,954 QUINTOS, JOAQUIN E. (Trustee) 1 DOMINGO, EMERITA R. 303,466 FERNANDEZ, PETER K. 1 VALERIO, MIKEL M.S. 241,279 16

ZARASPE, ANACLETA C. 214,038

MONES, REYNALDO A. 201,901

HEIRS OF EDGAR SARTE 148,622

RELLEVE, ALVIN K. 137,338

PUBLICO, EDGARDO 122,080

DUJUA, JOCELYN 115,532

GARCIA, NOEL B. 83,190

MADRIGAL, VICTORIA P. 63,384

LAO, ERIENE C. 63,384

PAULINO, MA. LUZ LOURDES M. 55,061

ANSALDO, LYDIA V. 53,876

CANTOS, LOLITA 53,185

LIMJOCO, ALEX 47,603

ZAPANTA, PRISCILLA D. 37,500

HERBOSA, ARTURO ALFONSO J. 36,219

NANO, ANA BELEN N. 35,288

YU, ANNIE 30,434

BRAVO, MELINDA C. 16,517

DE LEON, AURORA F. 7,923

GOPALAN, MA. LOURDES 6,155

CAPAROS, VILMA 6,155

PASCUA, ARNOLD F. 3,648

BALAN, ARIEL KELLY D. 3,169

BASA, VIRGILIO T. 1,857

DE LEON, MA. LOIDA 1,367

DE LEON, ROSANO 1,367

VILLASEÑOR, CELSO A. 1,330

TOLENTINO, RUFINO (DECEASED) 738

MONSOD, CHRISTIAN S. 714

BARTOLOME, ARSENIO M., III 410

DAYCO, ROLANDO P. 30

VILLA, JESUS S. (Trustee for AADC) 2

ABAYA, RAMON C. 1

TOTAL 3,081,871,843

This schedule shall be filed in support of caption Capital Stock in the balance sheet.


Schedule I – Retained Earnings Available For Dividend Declaration

Unappropriated retained earnings, beginning 2,142,047,044

Adjustment:

Remeasurement loss on defined benefit plan from previous years ‐

Deferred tax assets, beginning (15,225,491)

Retained earnings, beginning, as adjusted to amount available

for dividend declaration, beginning

Add: Net income actually realized during the year

Net income during the year closed to retained earnings 776,950,770

Add (deduct):

Unrealized foreign exchange loss – net of effects of cash and cash equivalents ‐

Movement of recognized deferred tax assets for the year 3,196,595

Net income actually realized during the year 780,147,365

Less: Dividends declared during the year (1,078,655,151)

Retained earnings available for dividend declaration, end 1,828,313,767

Reversal of appropriations ‐

Total RE, end available for dividend ‐ Parent 1,828,313,767

2,126,821,553


Schedule J. Map of Relationships Between and among the Company and its Ultimate Parent Company, Middle Parent, Subsidiaries or Co‐subsidiaries, and Associates

MARCH 31, 2017

SUBSIDIARIES

99%

STI EDUCATION SYSTEMS HOLDINGS, INC.*

STI EDUCATION SERVICES GROUP, INC.*

STI College Tuguegarao, Inc.100%

STI College Batangas, Inc.

100%

STI College Tanauan, Inc.

100%

STI Lipa, Inc.100%

STI College Alabang, Inc. 40%

STI College Marikina, Inc.

24%

Maestro Holdings, Inc.****20%

Global Resource for Outsourced

Workers, Inc. ****17%

ASSOCIATES

STI WEST NEGROS UNIVERSITY, INC. **

99%

* STI Education Services Group, Inc. owns 5% equity interest in STI Holdings as at March 31, 2017.** Formerly West Negros University Corp.*** A subsidiary through a management contract.**** Maestro Holdings, Inc. owns 20% equity interest in Global Resource for Outsourced Workers, Inc. a

at March 31, 2017

STI College Iloilo, Inc.100%

STI College Quezon Avenue, Inc.

100%

STI College Novaliches, Inc.

100%

STI College Taft, Inc.99.91%

De Los Santos – STI College, Inc.

52%

STI College Pagadian, Inc.

100%

ATTENBOROUGH HOLDINGS CORP.

100%

STI College of Kalookan, Inc.***

STI Dagupan, Inc.

99.87%

INFORMATION AND COMMUNICATIONS

TECHNOLOGY ACADEMY, INC.

100%

NESCHESTER CORPORATION

100%

STI EDUCATION SERVICES GROUP, INC. AND SUBSIDIARIES (A Private Educational Institution) SCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS MARCH 31, 2017

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS

Adopted Not Adopted

Not Applicable

Not Early Adopted

Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1 (Revised)

First-time Adoption of Philippine Financial Reporting Standards

Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters

Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

Amendments to PFRS 1: Borrowing Costs

Amendments to PFRS 1: Meaning of effective standards

PFRS 2 Share-based Payment

Amendments to PFRS 2: Vesting Conditions and Cancellations

Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions

Amendments to PFRS 2: Definition of Vesting Condition

Amendment to PFRS 2: Classification and Measurement Payment Transactions

PFRS 3 (Revised)

Business Combinations

Amendment to PFRS 3: Accounting for Contingent Consideration in a Business Combination

Amendment to PFRS 3: Scope Exceptions for Joint Arrangements

- 2 -


Adopted Not Adopted

Not Applicable

Not Early Adopted

PFRS 4 Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts

Amendment to PFRS 4: Applying PFRS 9 with PFRS 4

PFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Changes in Method of Disposal

PFRS 6 Exploration for and Evaluation of Mineral Resources

PFRS 7 Financial Instruments: Disclosures

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition

Amendments to PFRS 7: Improving Disclosures about Financial Instruments

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets

Amendments to PFRS 7: Disclosures - Offsetting Financial Assets and Financial Liabilities

Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures

Amendments to PFRS 7: Servicing Contracts

Amendments to PFRS 7: Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements

PFRS 8 Operating Segments

Amendments to PFRS 8: Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments' Assets to the Entity's Assets

PFRS 9 Financial Instruments

Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 and Transition Disclosures

- 3 -


Adopted Not Adopted

Not Applicable

Not Early Adopted

PFRS 10 Consolidated Financial Statements

Amendments to PFRS 10: Investment Entities

Amendments to PFRS 10: Sale or Contribution of Assets Between and Investor and its Associate of Joint Venture

Amendments to PFRS 10: Applying the Consolidation Exception

PFRS 11 Joint Arrangements


PFRS 12 Disclosure of Interests in Other Entities


Amendments to PFRS 12: Clarification of the Scope of the Standard

PFRS 13 Fair Value Measurement

Amendment to PFRS 13: Short-term Receivables and Payables

Amendment to PFRS 13: Portfolio Exception

PFRS 14 Regulatory Deferral Accounts

PFRS 15 Revenue from Contracts with Customers

PFRS 16 Leases

Philippine Accounting Standards

PAS 1 (Revised)

Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

Amendments to PAS 1: Presentation of Items of Other Comprehensive Income

Amendments to PAS 1: Clarification of the Requirements for Comparative Presentation

Amendments to PAS 1: Disclosure Initiative

PAS 2 Inventories

PAS 7 Statement of Cash Flows

Amendment to PAS 7: Disclosure Initiative

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

PAS 10 Events after the Reporting Date

- 4 -


Adopted Not Adopted

Not Applicable

Not Early Adopted

PAS 11 Construction Contracts

PAS 12 Income Taxes

Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets

Amendment to PAS 12: Recognition of Deferred Tax for Unrealized Losses

PAS 16 Property, Plant and Equipment

Amendment to PAS 16: Classification of Servicing Equipment

Amendment to PAS 16: Revaluation Method - Proportionate Restatement of Accumulated Depreciation

Amendment to PAS 16: Clarification of Acceptable Methods of Depreciation

Amendment to PAS 16: Bearer Plants

PAS 17 Leases

PAS 18 Revenue

PAS 19 Employee Benefits

Amendments to PAS 19: Actuarial Gains and Losses, Group Plans and Disclosures

PAS 19 (Amended)

Employee Benefits

Amendments to PAS 19: Defined Benefit Plans: Employee Contributions

Amendments to PAS 19: Regional Market Issue Regarding Discount Rate

PAS 20 Accounting for Government Grants and Disclosure of Government Assistance

PAS 21 The Effects of Changes in Foreign Exchange Rates

Amendment: Net Investment in a Foreign Operation

PAS 23 (Revised)

Borrowing Costs

PAS 24 (Revised)

Related Party Disclosures

Amendments to PAS 24: Key Management Personnel

PAS 26 Accounting and Reporting by Retirement Benefit Plans

PAS 27 Consolidated and Separate Financial Statements

- 5 -


Adopted Not Adopted

Not Applicable

Not Early Adopted

PAS 27 (Amended)

Consolidated and Separate Financial Statements

Amendments to PAS 27: Investment Entities

PAS 28 Investments in Associates

PAS 28 (Amended)

Investments in Associates and Joint Ventures

Amendments to PFRS 10: Sale or Contribution of Assets Between and Investor and its Associate of Joint Venture

Amendment to PAS 28: Applying the Consolidation Exception

Amendment to PAS 28:Measuring an Associate or Joint Venture at Fair Value

PAS 29 Financial Reporting in Hyperinflationary Economies

PAS 31 Interests in Joint Ventures

PAS 32 Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

Amendment to PAS 32: Classification of Rights Issues

Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities

Amendment to PAS 32: Tax Effect of Distribution to Holders of Equity Instruments

PAS 33 Earnings per Share

PAS 34 Interim Financial Reporting

Amendment to PAS 34: Interim Financial Reporting and Segment Information for Total Assets and Liabilities

Amendments to PAS 34: Disclosure of Information Elsewhere in the Interim Financial Report

PAS 36 Impairment of Assets

Amendments to PAS 36: Recoverable Amount Disclosures for Non-Financial Assets

PAS 37 Provisions, Contingent Liabilities and Contingent Assets

- 6 -


Adopted Not Adopted

Not Applicable

Not Early Adopted

PAS 38 Intangible Assets

Amendments to PAS 38: Revaluation Method - Proportionate Restatement of Accumulated Amortization

Amendments to PAS 38: Clarification of acceptable methods of amortization

PAS 39 Financial Instruments: Recognition and Measurement

Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities

Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition

Amendments to Philippine Interpretation IFRIC - 9 and PAS 39: Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

Amendments to PAS 39: Novation of Derivatives and Continuation of Hedge Accounting

PAS 40 Investment Property

Amendments to PAS 40: Clarifying the Interrelationship between PFRS 3 and PAS 40 when Classifying Property as Investment Property or Owner-Occupied Property

Amendment to PAS 40: Transfers of Investment Property

PAS 41 Agriculture

Amendment to PAS 41: Bearer Plants

- 7 -


Adopted Not Adopted

Not Applicable

Not Early Adopted

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments

IFRIC 4 Determining Whether an Arrangement Contains a Lease

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment

IFRIC 7 Applying the Restatement Approach under PAS 29, Financial Reporting in Hyperinflationary Economies

IFRIC 8 Scope of PFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation IFRIC - 9 and PAS 39: Embedded Derivatives

IFRIC 10 Interim Financial Reporting and Impairment

IFRIC 11 PFRS 2 - Group and Treasury Share Transactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programmes

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a Minimum Funding Requirement

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

IFRIC 17 Distributions of Non-cash Assets to Owners

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

IFRIC 21 Levies

SIC-7 Introduction of the Euro

- 8 -


Adopted Not Adopted

Not Applicable

Not Early Adopted

SIC-10 Government Assistance - No Specific Relation to Operating Activities

SIC-12 Consolidation - Special Purpose Entities

Amendment to SIC - 12: Scope of SIC 12

SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers

SIC-15 Operating Leases - Incentives

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

SIC-29 Service Concession Arrangements: Disclosures.

SIC-31 Revenue - Barter Transactions Involving Advertising Services

SIC-32 Intangible Assets - Web Site Costs

STI EDUCATION SERVICES GROUP, INC. AND SUBSIDIARIESSchedule L. Financial Highlights and Key Performance Incdicators

(in millions except margins, financial ratios and earningsper share) 2017 2016 Amount %

Condensed Statements of Financial Posi onTotal assets 11,316.0 8,510.2 2,805.8 33.0 Current assets 3,458.8 920.1 2,538.7 275.9 Cash and cash equivalents 2,880.3 542.2 2,338.1 431.2 Equity attributable to equity holders of the parent 6,483.6 7,106.2 (622.6) (8.8) Total liabilities 4,824.0 1,408.2 3,415.8 242.6 Current liabilities 1,013.8 556.2 457.6 82.3

Financial ra os

Debt to equity ratio (1) 0.74 0.19 0.55 289.5

Current ratio (2) 3.41 1.65 1.76 106.7

Asset to equity ratio (3) 1.74 1.20 0.54 45.0

(in millions except margins, financial ratios and earningsper share) 2017 2016 Amount %Condensed Statements of Income

Revenues 2,603.2 2,350.5 252.7 10.8

Direct costs (4) 800.5 706.3 94.2 13.3 Gross profit 1,802.7 1,644.2 158.5 9.6 Operating profit 874.1 666.8 207.3 31.1

Other income‐net (177.8) 73.3 (251.1) (342.6) Income before income tax 696.3 740.2 (43.9) (5.9) Net income 602.8 673.3 (70.5) (10.5)

EBITDA (5) 1,298.3 1,051.6 246.7 23.5 Net income attributable to equity holders of the parent company 601.5 671.0 (69.5) (10.4)

Earnings per share (6) 0.20 0.22 (0.02) (9.1)

Condensed Statements of Cash FlowsNet cash from operating activities 1,039.3 812.4 226.9 27.9 Net cash used in investing activities (1,246.9) (372.8) (874.1) 234.5 Net cash provided by (used in) financing activities 2,545.7 (527.1) 3,072.8 (583.0)

(in millions except margins, financial ratios and earningsper share) 2017 2016 Amount %

Financial Soundness Indicators

Liquidity Ratios

Current ratio (2) 3.41 1.65 1.8 109.1

Quick ratio (7) 3.19 1.43 1.8 125.9

Cash ratio (8) 2.84 0.97 1.9 195.9 Solvency ratios

Debt to equity ratio (1) 0.74 0.19 0.6 315.8

Asset to equity ratio (3) 1.74 1.20 0.5 41.7

Interest coverage ratio (9) 11.59 15.67 (4.1) (26.2)

Debt service coverage ratio (10) 1.57 7.07 (5.5) (77.8)

Profitability ra os

EBITDA margin (11) 50% 45% 0.05 11.1

Gross profit margin (12) 69% 70% (0.01) (1.4)

Operating profit margin (13) 34% 28% 0.06 21.4

Net profit margin (14) 23% 29% (0.06) (20.7)

Return on equity (15) 9% 10% (0.01) (10.0)

Return on assets (16) 6% 8% (0.02) (25.0)

(1)Debt to equity ratio is measured as total liabilities, net of unearned tuition and other schools fees, divided by total equity.

(2)Current ratio is measured as current assets divided by current liabilities.

(3)Asset to equity ratio is measured as total assets divided by total equity.

(4)Direct costs is calculated by adding the costs of educational services and educational materials and supplies sold.

(5)

(6)

(7)Quick ratio is measured as current assets less inventories and prepayments divided by current liabilities.

(8)Cash ratio is measured as cash and cash equivalents divided by current liabilities.

(9)Interest coverage ratio is measured as Net income excluding provision for income tax and interestexpense divided by interest expense.

(10)Debt service coverage ratio is measured as EBITDA divided by total principal and interest to be paid within the next 12 months.

(11)EBITDA margin is measured as EBITDA divided by total revenues.

(12)Gross profit margin is measured as gross profit divided by total revenues.

(13)Operating profit margin is measured as operating profit divided by total revenues.

(14)Net profit margin is measured as net income after income tax divided by total revenues.

(15)

(16) Return on assets is measured as net income divided by average total assets.

Return on equity is measured as net income attributable to equity holders of the parent Companydivided by average equity attributable to equity

holders of the parent company.

March Increase (Decrease)

EBITDA is Net income excluding provision for income tax, interest expense, depreciation and amortization, equity in net earnings (losses) of

associates and joint ventures, effect of derecognition of a subsidiary, interest income, gain on exchange of land and excess of fair values of net

assets acquired over acquisition cost.

Earnings per share is measured as net income attributable to equity holders of the parent company divided by the weighted average number of

outstanding common shares




Schedule M. ‐ Use of Proceeds (Fixed Rate Bonds‐₱3 Billion)

Series 7‐year Bonds due 2024 and Series 10‐year Bonds due 2027

( in PhP million)

Amount

Proceeds of the Fixed Rate Bonds 3,000

Disbursements:

Underwriting Fees 19

Professional Fees and Other Expenses 19

Deposit on the purchase of Lipa properties 39

Payment of Loans incurred for the purchase of

EDSA properties

Payment of Loans incurred for working capital

requirements

Total Disbursements as of March 31, 2017 559

Cash Balance as of March 31, 2017 2,441

383

100

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